O003CITY OF KENNEDALE
ORDINANCE NO. 3
AN ORDINANCE FIXING AND DETERMINING THE GENERAL SERVICE
RATE TO BE CHARGED FOR SALES OF NATURAL GAS TO RESIDENTIAL
AND COMMERCIAL CONSUMERS IN THE CITY OF KENNEDALE, TARRANT
COUNTY TEXAS; PROVIIDING FOR THE MANNER IN SUCH RATE
MAY BE CHANGED, ADJUSTED, AND AMENDED; APPROVING THE ELIM-
INATION OF THE COMMERCIAL CONTRACT PUBLIC SCHOOL RATE
PROVIDING FOR THE RECOVERY OF ANY CURRENT OR UNRECOVERED
PRIOR RATE CASE EXPENSE, PROVIDING FOR A SCHEDULE OF
SERVICE CHARGES, AND PROVIDING FOR A MAIN LINE EXTENSION
RATE.
BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF KENNEDALE, TEXAS:
SECTION 1. For all natural gas consumed on and after July 1,
1991, and billed after that same date, the maximum general service rate
for sales of natural gas rendered to residential and commercial consumers
within the city limits of Kennedale, Texas, by Lone Star Gas Company, a
Division of ENSERCH CORPORATION, a Texas Corporation, its successors and
assigns, is hereby fixed and determined as set forth in Item A, in the
Attachment hereto which is incorporated herein. This ordinance also
approves the elimination of the Commercial Contract Public School Rate
and the placement of those customers receiving said rate on the commercial
rate set forth in Item A in the attachment hereto.
SECTION 2. The residential and commercial rates set forth
above shall be adjusted upward or downward from a base of $.0200 per Mcf
by a Gas Cost Adjustment Factor expressed as an amount per thousand cubic
feet (Mcf) of natural gas for changes in the intracompany city gate rate
charge as authorized by the Railroad Commission of Texas or other regula-
tory body having jurisdiction for gas delivered to the Kennedale Distri-
bution System, according to Item B, in the Attachment hereto which is
incorporated herein. The rates in Item A shall also be adjusted according
to Item C in the attachment hereto which is the Weather Normalization
Adjustment.
SECTION 3. Company shall also receive tax adjustments
according to Item D, in the Attachment hereto which is incorporated
herein.
SECTION 4. In addition to the aforesaid rates, Company shall
have the right to collect such reasonable charges as are necessary to
conduct its business and to carry out its reasonable rules and regulations
in effect. The charges set forth in Items E, F and G, in the Attachment
hereto which is incorporated herein, are approved. Services for which no
charge is set out may be performed and charged for by Company at a level
established by the normal forces of competition.
SECTION 5. In addition to the aforesaid rates, Company is
authorized to recover the current and any unrecovered prior rate case
expense through a surcharge designed for a six -month nominal recovery
period. The surcharge per Mcf will be calculated by dividing the rate
case expense to be recovered by one half of the adjusted annual .sales
volume to residential and commercial customers. The Company will provide
monthly status reports to account for the collection.
SECTION 6. The rates set forth in this ordinance may be changed
and amended by either the City or Company in the manner provided by law.
Service hereunder is subject to the orders of regulatory bodies having
jurisdiction, and to the Company's Rules and Regulations currently on file
in the Company's office.
SECTION 7. It is hereby found and determined that said meeting
at which this ordinance was passed was open to the public, as required by
Texas law, and that advance public notice of the time, place and purpose
of said meeting was given.
A. D. 1991.
PASSED AND APPROVED on this the 13 day of June
AP I�ED :
Iayor Sfieve Radakovich
ATTEST:
•
IMMM
WA - 1
ATTACHMENT TO ORDINANCE NO. 3
CITY OF KENNEDALE, TEXAS
LONE STAR GAS COMPANY
TARIFFS & SCHEDULES
ITEM A. Rates
The following rates are the maximum applicable to residential and com-
mercial consumers per meter per month or for any part of a month for
which gas service is available at the same location.
Residential:
Customer Charge $ 7.0000
All Consumption @ 5.2020 Per Mcf
If the service period is less than 28 days in a month the
customer charge is $0.2500 times the number of days service.
Commercial:
Customer Charge $12.0000
First 20 Mcf @ 5.4478 Per Mcf
Next 30 Mcf @ 5.1478 Per Mcf
Over 50 Mcf @ 4.9978 Per Mcf
If the service period is less than 28 days in a month the
customer charge is $0.4286 times the number of days service.
Bills are due and payable when rendered and must be paid within
fifteen days from the monthly billing date.
Residential Off -Peak Sales Discount:
An off -peak sales discount of $.25 per Mcf will apply to residen-
tial customers volume purchased in excess of 8 Mcf for each of the
billing months May through October.
ITEM B. Gas Cost Adjustment
Each monthly bill at the above rate shall be adjusted for gas cost as
follows:
(1) The city gate rate increase or decrease applicable to current
billing month residential and commercial sales shall be estimated
to the nearest $0.0001 per Mcf based upon:
(a) A volume factor of 1.0312 determined in establishing the above
rates for the distribution system as the ratio of adjusted
purchased volumes divided by adjusted sales volumes.
(b) The city gate rate estimated to be applicable to volumes
purchased during the current calendar month, expressed to the
nearest $0.0001 per Mcf (shown below as "Re ").
(c) The base city gate rate of $4.0200 per Mcf.
(2) Correction of the estimated adjustment determined by Item B (1)
above shall be included as part of the adjustment for the second
following billing month. The correcting factor (shown below as
"C") shall be expressed to the nearest $0.0001 per Mcf based upon:
(a) The corrected adjustment amount based upon the actual city
gate rate, less
(b) The estimated adjustment amount billed under Item B (1) above,
divided by
(c) Distribution system residential and commercial sales Mcf
recorded on the Company's books during the prior year for
the month that the correction is included as part of the
adjustment.
(3) The adjustment determined by Item B (1) and Item B (2) above shall
be multiplied by a tax factor of 1.06226 to include street and
alley rental and state occupation tax due to increasing or
decreasing Company revenues under this gas cost adjustment
provision.
In summary, the gas cost adjustment (GCA) shall be determined to the
nearest $0.0001 per Mcf by Item B (1), Item B (2) and Item B (3) as
follows:
GCA = [Item B (1) + Item B (2)] X Item B (3)
GCA = [(1.0312) (Re - $4.0200) + C] X 1.06226
ITEM C. Weather Normalization Adjustment:
Effective with bills rendered during the October 1991 through April
1992 billing months, and annually thereafter for the October through
April billing months, the above residential and commercial consumption
rates for gas service will be subject to a weather normalization
adjustment each billing cycle to reflect the impact of variations in
the actual heating degree days during the period included in the bill-
ing cycle from the normal level of heating degree days during the
period included in the billing cycle. The weather normalization
adjustment will be implemented on a per Mcf basis and will be applica-
ble to the volume consumed by each customer during the period included
in the billing cycle. It will be determined separately for residential
and commercial customers based on heating degree data recorded by the
D /FW weather station. The adjustment to be made for each billing cycle
will be calculated according to the following formula:
NDD - ADD
WNA = ADD x M
Where: WNA = Weather normalization adjustment
NDD = Normal heating degree days during the period covered by
the billing cycle
ADD = Actual heating degree days during the period covered by
the billing cycle
M = Weighted average margin per Mcf included in the commod-
ity portion of the rates effective during the October
through April billing months
The weather normalization adjustment will be calculated to the nearest
$.0001 per Mcf.
ITEM D. Tax Adjustment:
The tax adjustment shall be an amount equivalent to the proportionate
part of any new tax, or increased tax, or any other governmental impo-
sition, rental, fee or charge (except state, county, city and special
district ad valorem taxes and taxes on net income) levied, assessed or
imposed subsequent to July 1, 1990, upon or allocable to the Company's
distribution operations, by any new or amended law, ordinance or
contract.
ITEM E. Rate Case Expense:
If rate case expense is incurred in this current case, it is the inten-
tion of Lone Star Gas Company to recover the current and any unre-
covered prior rate case expense through a surcharge designed for a
six -month nominal recovery period. The surcharge per Mcf would be
calculated by dividing the rate case expense to be recovered by one -
half of the adjusted annual sales volume to residential and commercial
customers. When a surcharge is applicable, monthly status reports will
be provided'to account for the collections.
ITEM F. Schedule of Service Charges
(1) Reconnect Charge
In addition to the charges and rates set out above, the Company
shall charge and collect the sum of:
Schedule
Charge
8 a.m. to 5 p.m. Monday through Friday $25.00
5 p.m. to 8 a.m. Monday through Friday $40.00
Saturdays, Sundays and Holidays $40.00
as a reconnect charge for each reconnection or reinauguration of
gas service, where service has been discontinued at the same prem-
ises for any reason, with the following exceptions.
(a) For a builder who uses gas temporarily during construction or
for display purposes.
(b) For the first occupant of the premises.
(c) Whenever gas service has been temporarily interrupted because
of system outage, service work or appliance installation done
by Company; or
(d) For any reason deemed necessary for Company operations.
(2) Returned Check Charge
A returned check handling charge of $7.50 is made for each check
returned to the Company for reasons of non - sufficient funds,
account closed, payment withheld, invalid signature or improper
preparation.
(3) Collection Charge
A charge of $7.00 shall be made for each instance when it is
necessary for a company employee to go to a customer's residence
or place of business in order to collect amounts owed the Company
for gas service previously rendered. This charge shall not apply
if service is terminated at the time of the collection action.
This charge shall apply to only one trip on the same amount owed.
ITEM G. Main Line Extension Rate
The charge for extending mains beyond the free limit established by
Lone Star Gas Company, or any free limit established by franchise, for
residential customers shall be the lesser of; (a) the system -wide
average cost of construction, including all overheads, for the prior
fiscal year or (b) the adjusted actual cost as determined by applying
the latest Handy - Whitman Index to the 1975 actual base cost of $2.94.
The Company shall file the calculation of such charge with the city as
soon as sufficient data is available each fiscal year. Extension to
commercial and industrial customers shall be based on actual cost per
foot.
STATE OF TEXAS §
COUNTY OF TARRANT §
I, Linda Jones
Tarrant County, Texas hereby
correct copy of an ordinance
of Kennedale at a regular
June , 1991, as it
Book 11 , Page 1792•
, Secretary of the City of Kennedale,
certify that the above and foregoing is a true and
passed and approved by the City Council of the City
session held on the 13th day of
appears of record in the Minutes of said Council in
WITNESS MY HAND AND SEAL OF SAID CITY, THIS THE 14 day of J une ,
A. D. 19 91
�G r
Secretary
City of Kennedale, Texas
STATE OF TEXAS §
COUNTY OF TARRANT §
I, Linda Jones
Tarrant County, Texas hereby
correct copy of an ordinance
of Kennedale at a regular
June 19 , as it
Book 11 Page 1792
, Secretary of the City of Kennedale,
certify that the above and foregoing is a true and
passed and approved by the City Council of the City
session held on the 13th day of
appears of record in the Minutes of said Council in
WITNESS MY HAND AND SEAL OF SAID CITY, THIS THE 14 day of June ,
A. D. 19 91 .
SecretaY
City of Kennedale, Texas
r`
� 4r
f
}
ORDINANCE NO. 85 -
AN ORDINANCE FIXING AND DETERMINING THE GENERAL SERVICE
RATE TO BE CHARGED FOR SALES OF NATURAL GAS TO REESIDENTIAL
AND COMMERCIAL CONSUMERS IN THE CITY OF KENNEDALE, TARRANT
COUNTY, TEXAS; PROVIDING FOR THE MANNER IN WHICH SUCH RATE MAY
BE CHANGED, ADJUSTED, AND AMENDED; AND PROVIDING FOR THE
RECOVERY OF ANY CURRENT AND UNRECOVERED PRIOR RATE CASE
EXPENSE, PROVIDING FOR A SCHEDULE OF SERVICE CHARGES, AND
PROVIDING FOR A MAIN LINE'EXTENSION RATE.
BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF KENNEDALE, TEXAS:
SECTION 1. Effective with gas bills rendered on and after November 1,
1985, the maximum general service rate for sales of natural gas rendered to
residential and commercial consumers within the city limits of Kennedale, Texas,
by Lone Star Gas Company, a Division of ENSERCH CORPORATION, A Texas
Corporation, its successors and assigns, is hereby fixed and determined as set
forth in Item A, in the Attachment hereto which is incorporated herein.
SECTION 2. The residential and commercial rates set forth above shall
be adjusted upward or downward from a base of $4.0200 per Mcf by a Gas Cost
Adjustment Factor expressed as an amount per thousand cubic feet (Mcf) of
natural gas for changes in the intracompany city gate rate charge as authorized
by the Railroad Commission of Texas or other regulatory body having jurisdiction
for gas delivered to the Kennedale distribution system, according to Item B,
in the Attachment hereto which is incorporated herein.
; SECTION 3. Company shall also receive tax adjustments according to
Item C, in,:the attachment hereto which is incorporated herein.
SECTION 4. In addition to the aforesaid rates, Company shall have the
right to collect such reasonable charges as are necessary to conduct its busi-
ness and to carry out its reasonable rules and regulations in effect. The ser-
vice charges set forth in Item D and E, in the Attachment hereto which is
incorporated herein are approved. Services for which no charge is set out may
be performed and charged for by Company at a level established by the normal
forces of competition.
SECTION 5. The rates set forth in this ordinance may be changed and
amended by either the City or Company in the manner provided by law. Service
hereunder is subject to the orders of regulatory bodies having jurisdiction, and
to the Company's Rules and Regulations currently on file in the Company's
office.
SECTION b. It is hereby found and determined that the meeting at
which this ordinance was passed was open to the public, as requiKed by Texas
law, and that advance public notice of the time, place and purpose of said
meeting was given.
PASSED AND APPROVED on this the 14 day of October
A.D. 19 85
ATTEST:
Secreta
GALA L. KIRK
Myyor
City of Kennedale, Texas
DANNY G. TAYLOR
a
STATE OF TEXAS §
§
COUNTY OF TARRANT §
I, GALA L_ KIRK , Secretary of the City of Kennedale,
Tarrant County, Texas hereby certify that the above and foregoing is a true and
correct copy of an ordinance passed and approved by the City Council of the City
of Kennedale at a Regular session held on the 14th day of
October , 19 8a, as it appears of record in the Minutes of said Council in
Book 8 , Page 1389
WITNESS MY HAND AND SEAL OF SAID CITY, THIS THE 14th day of Octobe ,
A. D. 1985
GALL L. KIRK
�J
City Secretary
City of Kennedale, Texas
ATTACHMENT TO ORDINANCE NO. 85 -21
CITY OF KENNEDALE, TEXAS
LONE STAR GAS COMPANY
TARIFFS & SCHEDULES
Item A. The following rates are the maximum applicable to residential and com-
mercial consumers per meter per month or for'any part of a month for
which gas service is available at.the same location." Summer rates
shall be applicable between the meter reading dates in May and October
(five months). Winter rates shall be applicable at all other times.
Residential: Winter Summer
Customer Charge $ 6.0000 $ 6.0000
All Consumption @ $ 5.2846 Per Mcf $ 4.9346 Per Mcf
If the service period is less than 28 days in the winter months,
the winter customer charge is $.2143 times the number of days
service.
If the service period is less than 28 days in the summer months,
the summer customer charge is $.2143 times the number of days
service.
Commercial: Winter Summer
Customer Charge $ 9.0000 $ 9.0000
All Consumption @ $ 5.2846 Per Mcf $ 4.9346 Per Mcf
If the service period is less than 28 days in the winter months,
the winter customer charge is $.3214 times the number of days
service.
If the service period is less than 28 days in the summer months,
the summer customer charge is $.3214 times the number of days
service.
Bills are due and payable when rendered and must be paid within fifteen
days from the monthly billing date.
Item B. Gas Cost Adjustment:
Each monthly bill at the above rate shall be adjusted for gas cost as
follows:
(1) The city gate rate increase or decrease applicable to current
billing month residential and commercial sales shall be estimated
to the nearest $0.'0001 per Mcf based upon :'
(a) A volume factor of 1.0294 determined in establishing the above
rates for the distribution system as the ratio' of adjusted
purchased volumes divided by adjusted sales volumes.
(b) The city gate rate estimated to be applicable to volumes
purchased during the current calendar month, expressed to the
nearest $0.0001 per Mcf (shown below as "Re ").
(c) The base city gate rate of $4.0200 per Mcf.
(2) Correction of the estimated adjustment determined by Item B (1)
above shall be included as part of the adjustment for the second
following billing month. The correcting factor (shown below as
"C ") shall be expressed to the nearest $0.0001 per Mcf based upon:
(a) The corrected adjustment amount based upon the actual city
gate rate, less
(b) The estimated'adjustment amount billed under Item B (1) above,
divided by
(c) Distribution system residential and commercial sales Mcf
recorded on the Company's books during the prior year for
the month that the correction is included as part of the
adjustment.
(3) The adjustment determined by Item B (1) and Item B (2) above shall
be multiplied by a tax factor of 1.06213 to include street and
alley .rental and state occupation tax due to increasing or
decreasing Company revenues under this gas cost adjustment
provision.
In summary, the gas cost adjustment (GCA) shall be determined to the
nearest $0.0001 per Mcf by Item.B (1), Item B (2) and Item B (3) as
follows:
GCA = [Item B (1) + Item B (2)] X Item B (3)
GCA = [(1.0294) (Re - $4.0200) + C] X1.06213
Item C. Tax Adjustment:
The tax adjustment shall be an amount equivalent to the proportionate
part of any new tax, or increased tax, or any other governmental impo-
sition, rental, fee or charge (except state, county, city and special
district ad valorem taxes and taxes on net income) levied, assessed or
imposed subsequent to January 1, 1985, upon or allocable to,the
Company's distribution operations, by any new or amended,law, ordinance
or contract.
Item D. Schedule of Service Charges
(1) Reconnect Charge
In addition to the charges and rates set out above, the Company
shall charge and collect the sum of:
Srharlltl a
Charge
8 a.m. to 5 p.m. Monday through Friday $20.00
5 p.m. to 8 a.m. Monday through Friday $30.00
Saturdays, Sundays and Holidays $30.00
as a reconnect charge for each reconnection or reinauguration of
gas service, where service-has been discontinued at the same prem-
ises for any reason, with the following exceptions.
(a) For a builder who uses gas temporarily during construction or
for display purposes.
i
(b) For the first occupant of the premises.
(c) Whenever gas service has been temporarily interrupted because
of system outage, service work or appliance installation done
by Company; or
(d) For any reason deemed for Company operations.
(2) Returned Check Charge
A returned check handling charge of $7.50 is made for each check
returned to the Company for reasons of non- sufficient funds,
account closed, payment withheld, invalid signature or improper
preparation.
(3) Collection Charge
A charge of $5.00 shall be made for each instance when it is
necessary for a company employee to go to a customer's residence
or place of business in order to collect amounts owed the Company
for gas service previously rendered. This charge shall not apply
if service is terminated at the time of the collection action.
This charge shall apply to only one trip on the same amount owed.
item E. Main Line Extension Rate
The charge for extending mains beyond the free limit established by
Lone Star Gas Company, or any free limit established by franchise, for
residential customers shall be the lesser of; (a) the system- wide
average cost of construction, including all overheads, for the prior
fiscal year or (b) the adjusted actual cost as determined by applying
the latest Handy- Whitman Index to the 1975 actual base cost of $2.94.
The Company shall file the calculation of such charge with the city as
soon as sufficient data is available each fiscal year. Extension to
commercial and industrial customers shall be based on actual cost per
foot.
ORDINANCE NO.
AN ORDINANCE REGULATING THE RATES AND CHARGES OF ALL
PERSONS, FIRMS, CORPORATIONS OR ASSOCIATIONS OF PERSONS
ENGAGED IN THE BUSINESS OF FURNISHING, DISTRIBUTING, OR
DELIVERING NATURAL GAS TO RESIDENTIAL AND COMMERCIAL
CUSTOMERS IN THE CITY OF FORT WORTH, TEXAS; REPEALING
ORDINANCE NO. 9491; PROVIDING A PENALTY CLAUSE; PRO-
VIDING FOR PUBLICATION IN THE OFFICIAL NEWSPAPER; AND
PROVIDING AN EFFECTIVE DATE.
WHEREAS, on February 6, 1991, Lone Star Gas Company made
application for an increase in Residential and Commercial gas
rates designed to produce additional revenues of $3,715,813 from
its Fort Worth Distribution System consumers, including
$2,610,154 from customers in the City of Fort Worth; and
WHEREAS, a public hearing has been held on this application
of Lone Star Gas Company, at which all interested parties were
given a full opportunity to be heard on the requested rate
increase; and
WHEREAS, the hearing on said rate increase application has
now been concluded and closed and the City Council has duly con-
sidered all matters presented to it;
NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE
CITY OF FORT WORTH, TEXAS:
SECTION 1.
That the City Council of the City of Fort Worth, in the exer-
cise of its sound legislative_ discretion, finds the following
facts to be established:
a. That Lone Star Gas Company's distribution prop-
erties used and useful in serving the consumers in
the Fort Worth Distribution System comprise an
Invested Capital Rate Base of $47,113,562 and an
Adjusted Value Base Rate of $73,422,435.
b. That Lone Star Gas Company is entitled to a 12.5%
rate of return on equity, a 10.71% rate of return
on its Invested Capital and a 6.87% rate of return
on its Adjusted Value Rate Base; and that said
rates of return are fair, reasonable and just
under the facts and circumstances presented.
C. That Lone Star Gas Company requires a net oper-
ating income of $5,045,862 on revenues from resi-
dential and commercial gas sales of $92,619,269 to
achieve the foregoing fair rates of return.
d. That the rates hereinafter fixed are determined to
be fair, just and reasonable; and that all previ-
ously adopted rates and charges for gas service to
residential customers in the City of Fort Worth
should be and are hereby repealed effective
July 1, 1991.
SECTION 2.
That for all gas consumed on and after July 1, 1991, and
billed on and after July 1, 1991, all persons, firms, corpora-
tions or associations of persons engaged in the business of
furnishing, distributing or delivering natural gas to residential
and commercial consumers in the City of Fort Worth are hereby
authorized to charge for their product and service in accordance
with the following schedules:
A. Residential and Commercial Rates
The following rates are the maximum applicable to
residential and commercial consumers per meter per
month or for any part of a month for which gas
service is available at the same location.
1. Residential
Customer Charge
All Consumption @
$7.00
$5.2020 Per Mcf
2
An off -peak sales discount of $.25 per Mcf
will apply to residential customers' volume
purchased in excess of 8 Mcf for each of the
billing months May through October.
If the service period is less than 28 days in
a month, the customer charge is $0.25 times
the number of days' service.
2. Commercial
Customer Charge $12.0000
First 20 Mcf @ 5.4478 Per Mcf
Next 30 Mcf @ 5.1478 Per Mcf
Over 50 Mcf @ 4.9978 Per Mcf
If the service period is less than 28 days in
a month, the customer charge is $0.4286 times
the number of days' service.
B. Rate Schedule for Schools
The Rate Schedule for Public Free Schools is with-
drawn from the Fort Worth Distribution System.
Service will be provided to public schools under
the Commercial Rate established herein. Upon
expiration of the current contract year of the
Commercial Public School Rate contracts now in
effect, the Commercial Public School Rate will no
longer be available.
C. Gas Cost Adjustment
Each monthly bill at the above rates shall be
adjusted for gas cost as follows:
1. The City gate rate increase or decrease appli-
cable to current billing month residential
and commercial sales shall be estimated to
the nearest $0.0001 per Mcf based upon:
a) A volume factor of 1.0312 determined in
establishing the above rates for the
distribution system as the ratio of
adjusted purchased volumes divided by
adjusted sales volumes.
b) The City gate rate estimated to be appli-
cable to volumes purchased during the
current calendar month, expressed to the
nearest $0.0001 per Mcf (shown below as
"Re ").
3
c) The base City gate rate of $4.0200 per
Mcf.
2. Correction of the estimated adjustment deter-
mined by Item B 1. above shall be included as
part of the adjustment for the second fol-
lowing billing month. The correcting factor
(shown below as "C ") shall be expressed to
the nearest $0.0001 per Mcf based upon:
a) The corrected adjustment amount based
upon the actual City gate rate, less
b) The estimated adjustment amount billed
under Item B 1. above, divided by
c) Distribution system residential and com-
mercial sales Mcf recorded on the
Company's books during the prior year
for the month that the correction is
included as part of the adjustment.
3. The adjustment determined by Item B 1. and
Item B 2. above shall be multiplied by a tax
factor of 1.06226 to include street and alley
rental and state occupation tax due to
increasing Company revenues under this gas
cost adjustment provision.
In summary, the gas cost adjustment (GCA) shall be
determined to the nearest $0.0001 per Mcf by
Item B 1., Item B 2., and Item B 3. as follows:
GCA = [Item B 1. + Item B2.] X Item B 3.
GCA = [(1.0312) (Re - $4.0200) + C] X 1.06226
D. Weather Normalization Adjustment
Effective with bills rendered during the October
1991 through April 1992 billing months and
annually thereafter for the October through April
billing months, the above residential and commer-
cial consumption rates for gas service will be
subject to a weather normalization adjustment each
billing cycle to reflect the impact of variations
in the actual heating degree days during the
period included in the billing cycle from the
normal level of heating degree days during the
period included in the billing cycle. The weather
normalization adjustment will be implemented on a
per Mcf basis and will be applicable to the volume
consumed - by each customer during the period
included in the billing cycle. It will be deter-
mined separately for residential and commercial
4
customers based on heating degree data recorded by
the D /FW weather station. The adjustment to be
made for each billing cycle will be calculated
according to the following formula:
WNA = NDD -ADD x M
ADD
Where: WNA = Weather normalization adjustment
NDD = Normal heating degree days during the period
covered by the billing cycle
ADD = Actual heating degree days during the period
covered by the billing cycle
M = Weighted average margin per Mcf included in the
commodity portion of the rates effective during
the October through April billing months
The weather normalization adjustment will be calculated to the
nearest $.0001 per Mcf.
E. Tax Adjustment
The tax adjustment shall be an amount equivalent
to the proportionate part of any new tax, or
increased or decreased tax, or increase or
decrease of any other governmental imposition,
rental, fee or charge (except state, county, city
and special district ad valorem taxes and taxes on
net income) levied, assessed or imposed subsequent
to July 1, 1991, upon or allocable to the
Company's distribution operations, by any new or
amended law, ordinance or contract.
F. Rate Case Expense
It is the intention of Lone Star Gas Company to
recover the current and any unrecovered prior rate
case expense through a surcharge designed for a
six -month nominal recovery period. The surcharge
per Mcf will be calculated by dividing the rate
case expense to be recovered by one -half of the
adjusted annual sales volume to residential and
commercial customers. When a surcharge is
applicable, monthly status reports will be pro-
vided to account for the collections.
G. Special Provisions and-Adjustments
1. Bills are due and payable when rendered and
if not _paid within 15 days of the date shown
on the bill as the "present meter reading"
date or the "for service through" date, sub-
jects the customers to immediate termination
5
N
of gas service unless they have made other
payment arrangements with the Company.
2. Restoration of service is subject to the fol-
lowing schedule of reconnect charges:
In addition to the charges and rates set out
above, the Company shall charge and collect
the sum of:
Schedule Charcte
8 a.m. to 5 p.m. Monday through Friday $25.00
Night, week -end and holiday $40.00
as a reconnect charge for each reconnection
or reinauguration of gas service, where ser-
vice has been discontinued at the same
premises for any reason, with the following
exceptions:
a) For a builder who uses gas temporarily
during construction or for display pur-
poses.
b) For the first occupant of the premises.
C) Whenever gas service has been tempo-
rarily interrupted because of system
outage, service work or appliance instal-
lation done by Company; or
d) For any reason deemed necessary for
Company operations.
3. A returned check handling charge of $7.50
will be made for each check returned to the
Company for reasons of non - sufficient funds,
account closed, payment withheld, invalid
signature or improper preparation.
4. A charge of $7.00 shall be made whenever it
is necessary to send a Company employee to a
customer's premises to collect amounts owed
for gas service.
SECTION 3.
For the purpose of assuring rates to be charged by Lone Star
Gas Company which are just and reasonable to the consumers of
natural gas within the corporate limits of the City of Fort Worth
as well as Company, City reserves unto itself the right and privi-
lege at any time to increase, decrease, alter, change or amend
this ordinance or the rates herein established and provided for,
or to enact any ordinance or adopt any such rates which would
effectuate such purpose. In so doing, City further reserves unto
itself the right and privilege of exercising any power granted it
under statutory law, administrative rule or regulations or other-
wise.
SECTION 4.
Lone Star Gas Company shall pay all reasonable rate case
expenses to the City of Fort Worth, Texas, not to exceed
$26,000.00.
SECTION 5.
If any section, subsection, sentence, clause, phrase or por-
tion of this ordinance is for any reason held invalid or unconsti-
tutional by any court of competent jurisdiction, such shall be
deemed a separate, distinct and independent provision and such
holding shall not affect the validity of the remaining portions
thereof.
SECTION 6.
All ordinances or parts of ordinances in conflict with this
ordinance are hereby repealed.
SECTION 7.
That any person, firm or corporation who refuses to comply
with the terms and provisions of this ordinance shall be deemed
guilty of a misdemeanor and, upon conviction, may be fined not to
fA
exceed Two Hundred Dollars ($200.00), and each day's violation
shall constitute a separate offense.
SECTION 8.
The City Secretary of the City of Fort Worth, Texas, is here-
by directed to publish the caption, penalty clause and effective
date of this ordinance for two (2) days in the official newspaper
of the City of Fort Worth, Texas, as authorized by Section
52.013, Texas Local Government Code.
SECTION 9.
That this ordinance shall take effect on and after the date
of its passage and publication as required by law.
APPROVED AS TO FORM AND LEGALITY:
U-1
City Attorney
Date: 5 ? S
ADOPTED:
EFFECTIVE DATE:
M .
OFFICE OF THE CITY ATTORNEY
THE CITY OF FORT WORTH
WADE ADKINS 1000 THROCKMORTON
CITY ATTORNEY FORT WORTH, TEXAS 76102
817. 870
May 29, 1991
Mr. Ted R. Rowe, City Administrator
City of Kennedale
P. 0. Box 268
Kennedale, TX 76060
On May 28, 1991, the Fort Worth City Council approved an
increase in residential and commercial gas rates for Lone Star
Gas Company. This action is in accordance with the
recommendations of Fort Worth's consultant Bill McMorries.
Enclosed are copies of Mayor and Council Communication No. 0-9158
and Ordinance No. 10849 which the City Council approved.
Your special attention is called to Section 2.D of the
Ordinance. This section approves a weather normalization factor.
The provision initially requested by Lone Star was reworded so
that the weather normalization factor will be calculated for each
customer each billing cycle.
I hope that this information will be of assistance to you.
Sincerely,
v k
-V
Wade Adkins
City Attorney
WA:als
cc: Mr. David A. Ivory, City Manager, City of Fort Worth
OFFICE OF THE CITY ATTORNEY
THE CITY OF FORT WORTH
WADE ADKINS 1000 THROCKMORTON
CITY ATTORNEY FORT WORTH, TEXAS 76102
817. 870.7600
May 8, 1991 t-
Mr. Ted R. Rowe, City Administrator
City of Kennedale
P. 0. Box 268
Kennedale, TX 76060
Dear Mr. Rowe:
In February, Lone Star Gas Company filed for a rate increase
in the cities which comprise the Fort Worth distribution system.
The City of Kennedale is one of the cities which has original
jurisdiction over the gas rates within its boundaries.
The City of Fort Worth engaged the firm of McMorries and
Associates to analyze the requested rate increase. Information
contained in the McMorries study is also applicable to the City
of Kennedale. We would like to share it with you.
The City of Fort Worth has scheduled a public hearing during
the regular City Council meeting on Tuesday, May 21 to consider
the rate increase. Mr. McMorries will present his study then.
You are welcome to attend and /or send your representatives.
If you would like more information or have questions, please
feel free to contact me.
Sincerely,
Wade Adkins
City Attorney
WA: DTR:aIs
cc: Mr. David A. Ivory, City Manager, City of Fort Worth
CITY OF FORT WORTH
LONE STAR RATE INCREASE
MAY 1991
MCMORRIES & ASSOCIATES, INC.
6300 Canyon Drive
Amarillo; Texas 79100
TABLE OF CONTENTS
Page
Summary of Recommendations .......................
1
Purpose of Testimony ............................
3
Addition to Rate Base ...........................
4
Unrestored Investment Tax Credit ................
5
Other Non - Investor - Supplied Capital .............
8
Customer Advances ...............................
9
Deferred Federal Income Tax .....................
11
Current Cost New and Adjustment for
Age and Condition .............................
12
Reasonable Balance ..............................
15
Rate of Return ... ...............................
18
Sales Volumes .... ...............................
28
Revenue Under Present Rates .....................
29
Gas Purchase Expense ............................
30
Lost and Unaccounted Gas ........................
31
Other Operating and Maintenance Expense .........
35
Taxes ............ ...............................
36
Uncollectible Expenses ..........................
37
Miscellaneous Expenses ..........................
39
Rate Design ...... ...............................
41
nAI D A f_71A_----- -- S2. A ___ i
—111 . %. LY11 —AY L111.J -1- ( 1JJVl.1C1U_a1 1111..
Exhibits
Page
1
Adjusted Value Rate Base
1
Original Cost
2
Current Cost
3
Construction Work in Progress
4
2
Working Capital
3
Hnrestored Investment Tax Credit
4
Reasonable Balance
1
Components for Reasonable Balance
2
5
Rate of Return Schedule
1
E=mbedded Senior Debt Cost
2
All Debt Cost
3
Equity Ratios
4
Dividend Yield
5
Growth Rates
6
Return on Average Common Equity
7
6
Summary - Revenue and Expenses
1
Gas Purchases
2
Other Operation and Maintenance Expense
3
Calculation of Taxes Other Than FIT
4
Revenue Related Taxes
5
Federal Income Tax Calculations
6
Uncollectible Expenses
7
Net Operating Income
e
Other Revenues
9
7
Rate Design
1
Comparison - Lone Star & Consultant
2
Appendices
A Qualifications
B Discussion on Reasonable Balance
r- 'rwc�r•; i r � � rr�r«_.e-•r.: :�r•r
i» a A. iviciviorries cx Associates, inc.
SUMMARY OF RECOMMENDATIONS
Q Please outline a summary of your recommendations.
A My recommendations are as follows:
1. Use an adjusted value Rate Base of $73,422,435
instead of $82,122,741 proposed by the Company.
McM Fxhibit 1, page 1.
2. Remove CWIP ($346,362 in Plant and $9,664
elsewhere) from the rate base.
3. Reduce Working Capital by $29,721.
4. Deduct additional Unrestored Investment Tar, Credit
($281,759) from Invested Capital.
5. Deduct Deferred Federal Income Taxes ($3,947,762)
from Invested Capital.
6. Use 70'% Original Cost and 30% Current Cost as a
reasonable balance to determine the adjusted value
in lieu of a 60 -40 balance proposed by the Company.
McM Exhbit 4, pages 1 and 2.
7. Decrease the adjustment for Age and Condition to
$107,993,950 from $109,594,617 as shown by Lone
Star.
8. Rate of Return of 6.87% as adjusted value instead
of 6.93% shown by Company.
9. Suggest 12.50% Rate of Return on book cost of the
Company's equity in lieu of 14.99%. proposed (13.50%
+ 1.49% for adjusted value increment).
10. A return (in dollars) of $5,045,862 instead of
$5,694,976 proposed by Lone Star. McM Exhibit 6,
page 8.
1t. Allow $1,509,814 for Federal Income Taxes v.
$1,823,292 shown by Company. McM Exhibit 6, page
6.
12. Increase Company's stated operating revenues (under
present rates) by $253,250 to disallow projected
sales repression factors.
A:u n A, n ____: -_ -- 1r-_
n
13. Allow 3.03% gas loss as experienced through year
ending June 30, 1990.
14. Increase revenue related taxes by $15,241 to
recognize tares on increased revenue in disallowing
Sales repression.
15. Deduct $86,328 for projected labor increase. McM
Exhibit 6, page 3.
16. Deduct $152,593 for Supplies and Expenses increases
projected.
17. Lower debt cost from 9.15'/. to 9.10% to account for
lower interest on variable rate debts and later
financial data.
18. Return check charge to remain at $7.50.
19. Increase collection charge from $5.00 to $7.00 on
delinquent accounts.
20. 1"crease Reconnect charges from $20.00 to $25.00.
2t. No customer charge differential between summer and
winter- months to remain. Recommend increase in
Residential Customer charge from $6.00 to $7.00 in
lieu of $8.00 requested, and increase in Commercial
Charge from $9.00 to $12.00 in lieu of $14.00
requested. See McM Exhibit 7, page 1 for suggested
rate design.
22. Rprommend'rate increase of $1,674,461 or 1.8% on
residential and commercial customers
(11,674,461/$90,944,808). This compares with their
requested amount of $3,715,813, or an 4.10'%
increase on residential and commercial customers.
23. Proposed Increases by Cities shown on McM Exhibit
7, page 2.
2
ivu:iviutncs uc Ilssuc aEcs, im.
H
PURPOSE OF TESTIMONY
Q What is the purpose of your testimony?
the purpose of this testimony is to present
recommendations to officials of the City of Fort Worth
for Invested Capital, Adjusted Value of Invested
Capital, Reasonable Balance, Rate of Return, Cost of
Capital, Gas Cost, Reasonable Operating and Maintenance
Expenses, Allowance for Federal Income Taxes, Other
Taxes, Rate Design and other items.
Q Would you describe the nature and scope of work
performed by McMorries & Associates in this proceeding?
A McMorries & Associates was retained by the City of
Fort Worth to review, evaluate, and to prepare
recommendations in regard to Lone Star's filing and
supporting data, and to assist the City staff in making
recommendations in the matter of a request to increase
rates in Fort Worth.
Q Have you prepared any exhibits supporting your
recommendations?
A Yes. McM Exhibits 1 through 7 were prepared by me
or under my supervision.
3.
D'11 T) A ,f u _A A Q. A T
lu A. 1V1C1VIorrles CX cnssoclates, inc.
Addition
To
Rate Base, Construction Work in Progress,
and Retirement Work in Progress
C� On McM Exhibit 1, page 1, please tell us why yotl
recommend an adjustment to the Company's ($346,362) Net
Pland and ($8,664) to construction work in progress
(CWIP).
�3 An adjustment is recommended because the Company
has reclassified some CWIP projects as Plant in Service
even though the projects were still not complete at end
of Test Year. GURA requires CWIP projects to be omitted
from t;he rate base unless it is necessary to maintain
the financial integrity of the company and the Company
has offered no proof that it is necessary.
If the Company can show that certain projects were
completed and placed into service before the end of the
test year, they can re- classify them as plant in
service.
In response to question 2A and 2B of Rate Base
section of RFI dated March 8, 1991, the Company shows
that of $2,959,972 CWIP on the books at 6/30/90, but
$2,595,483 was completed at 6/30/90. This leaves
$370,626 (29 projects) not completed at end of test
year. See McM Exhibit 1, page 4 for amounts allocated
to Residential and Commercial customers.
1 °: " "1 "' W (::11:::'T' (..1 s I -1 O D . G-)
4.
D:11 D A f_A f_--- -- -- S2, A --- -- T
L111 1 \• LYLl.l Yl Vllll.J tt L \JJV�,IQ LI.J� 111\..
UNRESTORED INVESTMENT TAX CREDIT
G In the Company's filing, page 13, under Investment
Deductions, the Company deducted Unrestored Investment
Tax Credits in an amount of $2,144,780. Should this
item be deducted from invested capital and is this the
correct amount to be deducted?
A The unrestored investment tax credit should be
deducted. This is non - investor - supplied capital and
should be deducted from both invested capital and
adjusted value rate base. There is no reason to allow
a return since there is no capital furnished. The 1983
Gas Utility Regulatory Act (GURA) provides for this
reduction under Section 4.01(e).
In determining the allocation of tax saving derived
from application of methods such as liberalized
depreciation and amortization and the investment
tar, credit, the regulatory authority shall
equitably balance the interests of present and
future cUstomers and shall apportion the benefits
between consumers and the gas utilities
accordingly. If any portion of the investment tax
credit has been retained by a gas utility, that
same amount shall be deducted from the original
cost of the facilities or other addition to the
rate base to which the credit applied, to the
extent allowed by the Internal Revenue Code. 1
Also, the full amount of unrestored investment tax
credit since 1971 should be deducted and not just "post
1. rJIJVPC! . O,. +: 1. :_:I. s, 1..t.. P):I WY M+/ S•:r T*1 e4 ., 01 (4w? 1°Pf7^7
5.
ulll -N. —La 111VLl1la tt. L 1a3 VL.l 4L%-a, 114l..
7
A
PURA" amounts as proposed by the Company. The 1983 GURA
provides that any POT of the investment tax credit
shall be deducted. It did not restrict consideration +-o
only subsequent investment tax credits. Had there never -
been a GURA, good regulatory practice would require
non - investor supplied capital to be deducted from the
rate base. The only condition is "to the extent allowed
by th- Internal Revenue Code ".
Are there any restrictions (or requirements by the
Internal Revenue Service Code before investment tax
credits can be utilized in the rate base determination
or iri cost of service?
Yes. Section 46(f)(1) sets forth the general rule
that, in the case of regulated companies, no investment
tax credit for public utility property is allowed if the
taxpayer's rate base for ratemaking purposes is reduced
because of the investment tax credit, unless the
rFldl.lc Lion in the rate tease is restored no less rapidly
than ratably. IRC, Section 46(f)(6) defines the
"ratable portion" as the period of time used in
computing depreciation on the company's regulated books.
In this case, the Company's depreciation life is used to
restore the investment tax ratable.
��ections 46 (f)(2) and (f)(3) provide alternative
treatment to companies who - filed timely elections in
6.
-111 11. l -1l h�l l 1I j l _ L 1JJu1_14L 11 11..
1971. It is my understanding that Lone Star did not
file �n election for alternate treatment on investment
tax credit.
Q What is the amount that you recommend to deduct
from the rate base for Unrestored Investment Tax Credit?
A $2,426,539. (See McM Exhibits 1 and 3).
7.
n:II D Aif_A f_ ._:__ Q, A r
v.,. .,. .1. " 11 J - L wj,,U .14 al LIII.•
OTHER NON- INVESTOR SUPPLIED CAPITAL
C7 Another item, Customer Deposits, is the same as
that shown by the Company. Why have you included this
item?
A The funds are provided by the ratepayer and he
should not be required to pay a rate of return on money
that he has furnished to the utility. Since the Company
pays the ratepayer six percent on his deposit, I suggest
that the interest be added to the cost of service and
the amount of deposit be deducted in determining the
rate base. Interest costs associated with these
advances are also included in cost of service.
In Gas Utility Information Bulletin No. 430, dated
February 11, 1991, the Texas Railroad Commission on page
43 stated that all gas utilities should use a 6.75'%
interest rate on customer deposits in 1991. The imputed
interest expense based on active deposits is thus:
6.75 %. x $2,312,083 = $156,066
(Worksheet Pages 1 -6)
I`�'T'WC:1Fre"i'11 a IC1N ]: $MV -
CE
Q:11 n AA A.T Q. A T
L 111 1 %. 1Y1C1Y1V1llC3 %,k L 1JJVCId ICJ Llll..
CUSTOMER ADVANCES
Ca On Exhibit 1, page 1, you have reduced the rate
base $917,677 for advances for construction. Please
explain what this is and why it has been deducted from
the rate base.
A The Company's policy to provide new or expanded
service to developments, industry, commercial, and
residential areas beyond their service policy limit,
i equitPs a deposit on construction cost in advance until
enough customers are connected to provide an adequate
return on construction investment.
O Is this amount typical for this distribution
system?
A Yns. It appears to be a typical or normal amount.
P Are these advances paid back to the customers?
A If the customer meets the agreed development level
each near.
(J Are these advances a source of interest -free money
to Lone Star?
A No, not exactly free - but almost free. During the
test year interest was paid to the developer at a rate
of 9.9'% on the qualifying accounts. Since only $18,912
interest was paid on these advances in the test year,
9.
r - Q,
T
UIII 1 \. l.al.t.aVllll.O tom. [ 1JJVl.1Q t�.J� lll\..
the effective interest rate (or advances) was only about
2.3% per annum.
Q Is the interest paid by Lone Star on these advances
allowed in the cost of service?
A Yes. The $18,912 expense for interest is allowed
in the cost of service and the $817,677 of customer
advances for construction (Account 252) is deducted from
the rate base.
10.
Q'll n A.f_AIf -' A> A -
T
"KAI l\. lYll.lYlVll il.J l� [ 1JJVl,l6lt.J� At-
DEFERRED FFDER01_ INCOME TAX
C� (In McM Exhibit 1, page 1, you show an adjustment of
$3,947,762 to original cost for deferred federal income
taxes. Was this item deducted by the Company?
A Yes. The Company did deduct this item from
originaI cost and from invested capital.
How was this amount determined?
A it was determined by multiplying the accumulated
deferred income tax in Account 282 by the factor based
on property addition and then deduct the $188,492
related to capitalized overhead that was disallowed by
the Internal Revenue Service. The result would be as
follows.
Accumulated deferred
Federal Income Tax $4,013,766
Less Deficiency in ADFIT (68,004)
Net $3,947,762
r: •rwara•rr•+ n z:>r=• a t.
11.
RAI A .e, A ____:____ r__
CURRENT COST NEW
AND
ADJUSTMENT FOR AGE AND CONDITION
-------------------------- - - - - --
Q Did you review the Company's current cost study?
A Yes.
Q What method did they use to determine the current
cost new? Please comment if you concur with the method
used.
A The Handy - Whitman Cost Index of Public Utility
Construction was used to trend Mains, (376), Measuring
and Regulating Stations, (378), Services, (3(30), Meter
Installations, (382), and Regulator Installations,
(384). Unit prices were used to determine the current
costs for Meters (381) and Regulators (383) and original
cost was used as current cost on other items. These
costs seem reasonable.
Q Have you reviewed the exhibits prepared by the
Company concerning adjustment for age and condition?
A Yes.
Q Do you concur with their adjustment for age and
condition?
A No. The adjustment that I recommend is $1,590,667
less than that proposed by the Company. I have used the
Depreciation Reserve Method to make an adjustment for
age and condition.
12.
D Do you have any comments regarding a method of
adjustment for age and condition?
A Yes. While the Depreciation Reserve Method is very
simpIE- it VIJ i 1 1 normally understate the true loss in
service value due to age and condition during periods of
sustained inflation, and conversely, it will tend to
overstate loss after long periods of deflation. This is
true since the first dollar of reserve is considered the
same weight as the last. Tt seems only proper if
original cost is trended - the depreciation reserve
representing the loss in value should be trended. The
Depreciation Reserve Ratio Method merely raises the
dollar amount of the reserve without recognizing that
the early dollars of retirement represent more property
than the latter.
The loss in service value is the best deduction for
age and condition.
O How can the loss in service value be determined?
A The loss in service value can be measured by the
consumption of service life. For instance, if an item
of equipment has the capability of rendering 20 years of
service at the Pnd of four years one -fifth of its
economic life would have passed, one -fifth of its value
would have been absorbed, and the existing depreciation
would be one -fifth of its cost.
13.
Q:11 n A.f_A,f - I Q1 A _ f
In your opinion, what is the best method to
determine adjustment to current cost for both age and
condition of the plant?
A Where possible, adjustment for age and condition
should be based on age -life methods by applying the
latest information available on age of property,
estimated average service life, mortality dispersion,
and estimated net salvage value. The reserve
requirement analysis may be applied to current or
original cost.
(� Why have you not determined this adjustment based
Upon loss in service value?
As long as the regulating body recognizes that
adjustment for age and condition does not affect the
final amount of revenue required by the utility, the
determination of adjustment for age and condition
becomes less important. In my opinion, if that should
be the case, the extra expense required to determine
adjustment for age and condition by the loss in service
value method is not justified.
The Depreciation Reserve Method is the next best
method and it is the one that I would suggest for this
case. -
14.
Bill R. McMorries & Associates, Inc.
REASONABLE BALANCE
Q Did the Company follow the Gas Utility Regulatory
Act (GURA) in determining a reasonable balance for the
adjusted value rate base?
A They may have but then is no evidence to indicate
that they followed GURA guidelines in determining this
balance.
G Please explain.
A The Company made no attempt to determine the
reasonable balance but simply used a balance giving the
highest fair value. AlthOUgh the 1983 GURA did not
provide a formula to use in determining a reasonable
balance, items were mentioned for.consider in
determining that balance (inflation, quality of service,
growth, and the need to attract capital). It is
difficult to understand how one can consider these four
factors and not attempt to quantify each, either
mentally or on paper. Since each case is different,
some importance should be given to each item that is
being considered and a determination made that no
importance be given. The impact of total inflation
(since the property was constructed) is likely to be
different for each case.
15.
LIM D X,f_XX___:__ R, n ___ r
...... .1. a.a,.a ll.1. - L %aa U%.14t _a1 Lim%_
0 What balance do you recommend?
A 1 recommend the use of 70% weighting to original
cost and 30% weighting to current cost.
Please explain why you used this weighting of the
two components.
A As shown on McM Exhibit 4, pages 1 and 2, I
considered the factors: inflation, quality of service,
growth, and the need to attract new capital. I tried
four separate mathematical models, using the Company's
data, to determine a range of 68.5'%. to 72.5% to apply to
original cost. The 70% -- 30% balance was then selected.
(� You stated that mathematical models were used in
determining your range for reasonable balance. Why
didn't you use just one model and determine one
reasonable balance factor?
A Because mathematical methods are only tools to aid
in determining the final balance - they are used as
benchmarks or guideposts. Since GURA does not stipulate
the method to use in reaching a balance, it is not
important which method is used as long as it is fair,
impartial and considers the four factors in some looical
manner -. I believe my method meets the criterion stated.
(� Please explain the purpose of Appendix. B.
A Appendix B explains the rationale and methods of
the four mathematical models.
ib.
nAl D A.i_A.f_. ... :_- Rr A - - -__ -- i
0 Have other regulatory bodies in Texas accepted your
logic on reasonable balance by using the methods
outlined above?
A Yes.
0 Has the Railroad Commission used any balance other
than the 60 -40 balance?
A Prior to 1970 (approx.) the Railroad Commission
used a 50 -50 balance, but in Docket 428 (Pioneer Natural
Gas) they changed to a 60 -40 balance and they have used
that balance since that time.
17.
R:ll A AT A ____:_. __ r -_
RATE OF RETURN
CAPITAL STRUCTURE
Q What is the first step necessary in determining the
overall cost of capital to be used in this case?
A First, it is necessary to determine the source of
funds (capital structure) that provided the investment
in the company. The ratio of various sources of capital
have an important impact upon the overall cost of
capital.
Q How should one determine the capital structure to
be utilized in a rate case?
A The capitalization ratio should be one that is
typical for a gas distribution system. tone Star has no
independent capitalization but is an unincorporated
division of Enserch and obtains its capital from
Enserr_h. Usually, the parent company's consolidated
capital structure is used as a proxy where its
capitalization ratios are regarded as typical for a gas
distribution company. Lone Star has previously used
Enserch's capitalization in its rate making
presentations but Enserch's equity capital has
decreased in recent years from 41.9% in 1995 to 36.i% in
1989.
18.
D:11 D A.T_Ad_ °---__ Q, A__*_ T
✓... .,. I, VII ILJ - < \J J.L J? X.-
McM Exhibit 5, page 4, shows Debt and Preferred and
Common Equity ratios for several companies. These are
typical gas distribution companies.
Compared with Enserch's capital ratio, the average
for the companies is as follows:
Example
Companies
Enserch
Debt 47.4% 1/
56.25%
Preferred 4.6 1/
8.52
Common 48.8 2/
35.23
1 / From Exhibit MEF - 4
2/ From MCM Exhibit 5, page 4
Q What common equity -debt ratio do you recommend?
A I have not changed, in this preliminary study, Lone
Star's proposed typical capital structure. The Company
Points out that its common equity ratios is below those
gas distribution system listed. There is concern as to
the recent decline in Enserch's equity capital. Will
this decline continue? Since embedded debt cost is to
some extent dependent on its equity capital ratios then
a mismatch can occurs if we use typical gas distribution
capitalization ratios and Enserch's embedded debt. Lone
Star should be required to prove, at the rate hearing
that it is more appropriate at this time to use Capital
ratio's of a typical gas distribution than Enserch's
actual ratios. Absent - convincing proof Enserch's
capital ratios would be more appropriate.
19.
Bill R. McMorries & Associates, Inc.
DEBT COST
O The Company used
A I have utilized
with the latest known
This represents their
debt, debentures, and
5, pages 2 and 3.
9.15% cost of
= nserch's cost
variable rate
embedded cost
short term del
debt. Do you agree?
of debt at 12/31/90
cost which is 9.10%.
of senior long term
3t. See McM Exhibit
PREFERRED STOCK
On M01 Exhibit 5, page 1, you show 9.47% as the
rate for preferred stock while the Company used 0.07%.
How did you arrive at that figure?
A Again I have utilized the cost of preferred at
12/31/90. Look at McM Exhibit 5, page 3. Of the two
outstanding issues totaling $175 million, the weighted
average cost is determined to he 8.471'/.
COMMON EQUITY
0 What do you mean by rate of return?
A The rate of return on the rate base is the
company's net operating income divided by the value of
the rate base then converted to percent. The rate is
normal' .expressed in return on adjusted value and
invested capital, Another important element is the
return on book cost of common equity.
20.
T2:11 A X f T,A :.._ Ar A- - - -: -- T
It is necessary to examine the cost of debt,
preferred stock and common equity -types of capital in
fixing the rate of return on the rate base. The rate of
return on common equity should be comparable to other
companies of like risk and must be sufficient to
maintain financial integrity, attract capital, and
compensate investors for the risk assumed. When applied
to the adjusted value rate base, the return must be high
enough to attract ample capital but it need not exceed
that amount.
Q How do you determined the proper rate of return on
the rate base. Please elaborate.
A The primary determinant in fixing a rate of
return sufficient to attract capital is the return on
common equity; debt costs and preferred stock costs are
fixed and known.
The rate of return must vary with the type of rate
base used - this is brought out clearly in the Alvin and
Hope cases when they said that it is the end result that
counts.
The product of the rate base and rate of return
must basically and generally cover the cost of capital,
no more and no less.
21.
Bill R. McMorries & Associates, Inc.
The cost to assign equity capital is difficult to
determine. The true cost of equity capital is that
return (cost) necessary to attract investors.
Q How do you determine the cost of capital?
�� there are several methods may be utilized in
estimating the cost of equity capital. 1) comparable
earnings, 2) discounted cash flow (DCF) of the company,
3) discounted cash flow of comparable companies,
4) risk /premium, and 5) a combination of the above.
D How would you suggest the cost of equity capital
be determined if the comparable earnings methods were
used?
A One step would be to select other companies
that are totally (or principally) gas distribution
companies. Diversified companies should be used where
the gas distribution portion represents a high
percentage of the company's total investment. Valid
selections are listed in Moody's Public Utility Manual.
The rate of return on common equity can be expressed net
income for period /average book equity for the period.
Q Flow onuld you suggest the cost of equity capital be
determined if the discounted cash flow concept is used?
A The discounted cash -flow concept presumes that the
price of stock is determined in the market place and
22.
Bill R. McMorries & Associates, Inc.
reflects the proper cost of capital. The basic
assumption is that investors are purchasing stock based
on future dividends and change in value of the stock or,
expressed mathematically: K = D/P + gy where K =
required rate of return on equity, D = dividends in the
r_ominq
year, P =
current
market
price
(over a recent
period
of time),
and g =
growth
rate
in dividends.
It is my recommendation in determining the growth
rate in dividends (g), that three elements be reviewed:
growth in dividends per share, growth in earnings per
share, and growth in net book value per share. It is
our suggestion that a 5, 10, or 15 -year historical
records be examined in determining these factors.
Q What other factors do you believe should be
considered in determining the rate of return on common
equity?
A Other factors could include market -to -book ratio,
size of utility (and company), risk difference between
utility division and diversified corporation,
diversification benefits, debt equity ratio, service
area and growth expectation, and reliability of gas
supply.
You previously referred to the Hope and Alvin cases
in defining the proper rate of return. Are there other
23.
R:II I? A, A______-__ r
-1 ate. a.a-aVaa - K L LIM.
cases often considered as guidelines for determining a
rW
proper rate of return?
Yes. The Bluefield Case l/ is often quoted as a
guide:
"A public utility is entitled to such rates as will
permit it to earn a return on the value of the
property which it employs for the convenience of
the public equal to that generally being made at
the same time in the same general part of the
country on investments in other business
undertakings which are attended by corresponding
risk and uncertainties...
The return should be reasonably sufficient to
assure confidence in the financial soundness of a
utility and should be adequate under efficient and
economical management to maintain and support its
credit and enable it to raise money necessary for
the proper discharge of its public duty."
1.
a
re
t. i nn }' L "I T. c.1 4J I*%I; Mr• W.c }r .e ,ua VA cl T mfr r ^ <:> .: F "�..a t:r 1. t. c: L3 *%. 1 --
mm f. uti — i. vn rt r.. v W M M t; V f. r^ C7 1. 1-1 1 x }}Et C:1 }3 L.1 . L3 .. f. ❑'i '4' ( J. '7 F_^. 3T ) . pi .
On McM Exhibit 5, page 1, you show rates of return
by using 12.25'/., 12.50 %, and 12.75% return to equity.
Explain how you arrived at the rate of return on equity
by using the discounted cash flow (DCF) method.
I examined the growth record in dividends and
earnings per share for the Enserch Corporation. (See
growth factors shown below.) The historical growth (in
dividends) has been about 6.0' /..
The following figures illustrate the various range
of growth rates (g) using the average growth of net book
D II D Ad_AX
24.
Q> A _ T� .
uau a�. ua�.a.avaaa�.a � a wave aa.�a •..� -.
value, dividends, and earning per share. The growth
rate (g) varies from a low of (6.25'/.) - (10 years) to a
high of 7.05% (5 years).
5 -Year 10 -Year 15 -Year
NBPS (6.37%) ( 2.69'/. ) 0.85%
DPS (12.94%) ( 3.31'/. ) 0.80%
EPS -- -- _ --
Average (9.65%) (3.00'/.) 0.835%
I have used $19.19 as the current price (p) of
Enserch common stock by using the high and low prices
for December 1990 through February 1991.
The current dividend (d) per share is projected
to be $1.00 (d /p = 5.21). A review of ten other
Natural Gas Distribution Companies, McM Exhibit 5, page
5, shows and average dividend yield of 7.08 %.
using 0.84% growth, d/p + g, we have a 6.04% rate
of return on equity (k). This would not be comparable
to other Companies return on equity. If we use 7.08%
normal growth we have a 12.29% rate of return.
An analysis of the required rate of return on
common equity for Enserch Corporation (based on DCF)
would indicate a range of 12.12% or higher (not
including flotation costs). By adding 5% flotation cost
on the d/p portion of the DCF equation, the rate of
return on common equity would be (5.211.)1.05 + 7.08% _
12.55 %.
25.
R:11 D A If f _._._:__ J2. A __ i�_
"Lis 1%. 1Y1 1.1V1Vl Li" LA� L 133Vl.IdL" L"%-.
Q Please explain McM Exhibit 5, pages 5, 6, and 7.
A McM Exhibit 5, page 6, indicates that comparable
gas companies had an average growth rate of 6.0% and an
average dividend yield of 7.oe% (p.5). The average
market -to -book value ratio of these companies would be
above one.
Correcting for book value of about 1.1 book and
using these dividends and growth rates (comparable
companies), we have a return 13.0e %/1.1 = 11.9% (no
flotation).
1f an additional allowance is made to allow a 5%
flotation cost, the return would increase to about
12.5%. Comparable earnings, would indicate 13.1'%
(actual), and 11.9% (allowance for flotation cost).
Another interesting look at the rate of return is
to compare the return earned by these companies with the
DCF model of comparable companies. If we use the
distribution companies shown in McM Exhibit 5, page 6,
we have-
5-year average return on equity 14.1%
Correcting for market -to -book of 1.2
Indicated return 11.2%
(Also see McM Exhibit; 5 page 7).
Using DCF and comparable companies, various return
values become 12.55% (Imputed Enserch with flotation
cost), 11.9'% MCF comparable companies), 12.5'% with
26.
Bill R. McMorries & Associates, Inc.
flotation cost, and 11.2% for return earned by similar
companies.
Q After making the various analyses and studies, what
do you recommend for a rate of return?
A For
a
rate of
return on
common equity, I
recommend
a range
of
12.25%
to 12.75 %.
I selected the
mid -point
of 12.50%.
�._..�..�•�c�ra r i Fza , r t
27.
Dill D .Q, A --- -- T....
✓lll L \• lYLI.LYLVll1l.J L� l 1JJV l.aO «.J� a..�.•
SALES VOLUME
D The Company shows an adjusted sales volume of
15,111,034 Mcf for the Test years. Do you concur with
this amount?
A T have increased their sales volume by 48,408 Mcf.
This represents 37,595 Mcf for Residential and 10,813
Mcf for Commercial Sales.
Q Why have you increased these sales volumes?
A The Company proposed an adjustment to Test year
Sales due to the historical decline in sales volumes.
They attempt to estimate this decline for the next year
We disagree with this subjective sales reduction and
recommend that this adjustment be disallowed.
Q What is your recommendation for Sales Volume in
this case?
A Residential 9,398,286 Mcf
Commercial 5,761,15
Total 15,159,442
Q What do you recommend for number of Customers for
Rate Design?
Residential 133,029
Commercial 12,136
Total 145,165
r° r i,.i(::)ra:•rr.+*�stsisi r *amvr. i....
28.
n.11 D A f_Ad— -- Rr A -- -- -- r__
✓all a \• L.F\ -a �l Vllll.J t+� L \JJ Vl.161.1.J� 11��.•
REVENUE UNDER PRESENT RATES
(� On page 1, line 6 of their rate filing, the Company
shows Operating Revenue, under present rates, as
$90,691,558. Do you agree with this figure?
A No.
Q Please explain why you do not agree.
A Additional revenue should be added to the Company's
adjusted test year revenue to include the sales
repression adjustment that we suggest be disallowed.
Q What operating revenue do you recommend under the
present rates?
A Under present rates, I:he operating revenues
recommended are as shown below.
Sales
Residential $58,776,357
Commercial 31,073,126
Other Service Charges 1,095,325
Operating Revenue $90,944,808
990,944,140 (Operating Revenue) is $253,250 more
than that shown by the Company.
F: Tw( ::)rc! °rr4',"I Fi ' -M
29.
t2:u n AIf_AA- _: -- A, n --- - = - - -- T
GAS PURCHASE EXPENSES
Q On McM Exhibit b, page 1, you show an adjustment of
$443,925 to the Company's gas purchased cost under
present rates. Please explain this adjustment.
A Look at McM Exhibit b, page 2. One adjustment is
to add 37,595 Mcf and 10,813 Mcf to Residential and
Commercial Sales respectively to eliminate Company's
repression adjustment. The second adjustment is to
reflect a smaller gas loss (3.03%). McM Exhibit b, page
2 shows the determination of gas purchase expense that
we recommend.
r° rwcir ri 4,eaiartr• i..rfir: x
30.
U..L N. L♦ -- N L LJJVl.lQ 4<.J� Laa�..
LOST AND UNACCOUNTED GAS
Q In Account 804, page 1, line 11, the Company has
included $2,770,685 for unaccounted gas for Residential
and Commercial customers. Is this -a proper amount?
A No. I believe the cost should be adjusted.
Q Please explain what amount should be allowed.
A Normally, the method used to determine the volume
of lost and unaccounted for gas should be the most
recent 12 months of gas loss experience ending June 30
but limited to a maximum of 5 %. The Railroad Commission
follows this practice (Substantive Rule No. 23). The
Company has attempted to account for $491,248 in lost
and unaccounted for gas lost thru measurement error.
Also, the Company (on page 1 -1B) has used a gas loss
factor of 4.93'% for Residential and 2.5B% for Commercial
customers. The Loss factor determined by Lone Star for
the 12 months ending June 30, 1990 was 3.03% on 669,609
MCF; this is calculated by relating lost and unaccounted
for amount (669,609 Mcf) to sales. The transported
volumes of 4,684,134 have been omitted.
Q What percent loss did the Company report for the
past 5 years?
31.
Bill R. McMorries & Associates, Inc.
A In response 2A to the City of Fort Worth's first
request for information, the following distribution
losses are shown:
12 Months Reported
Ending Percent
June 30 Unaccounted
1986 4.43%
1987 3.55%
1988 1.9e%
1989 2.9e%
1990 3.13% �
*corrected to 3.03%
Q How do you determine the amount of gas purchased?
A The total volume of gas purchased and delivered to
the System (including transportation) is the denominator
and the lost and unaccounted gas is the numerator. This
ratio gives the loss factor. This ratio is thus:
Volume Lost 669,609
Purchase & Transportation 22,108,245 = 3.03%
Q What loss and unaccounted for gas do you recommend
in this case?
A 2.70% to 3.03% - preferable 3.03%.
Q Flow did you determine this amount?
A The gas loss recommended should be based either on
a 2 or 3 -year average or the latest 12 months ending
June 30. The loss percentage should also be
recalculated by using the loss divided by the gas
32.
D•II D L x ,L x Q. A T
"111 11. 1V11.1V1VLL1%.a %-Y. 1133VL.l 1111..
metered into the system. The Company has assigned only
a small loss (0.8%) to Industrial Sales and
Transportation. The loss, due to leaks, would not
change just because the gas is being transported for
other customers, for Industrial Customer or Residential
and Commercial customers.
The metering accuracy may be higher for large users
(customers of transported volumes) as the Company
contends, but there has been no proof offered that the
residential and commercial customers meters are the
culprits. The loss could also be due to leaks.
Since it has been the city's past policy, we
suggest a gas loss factor based on the most recent 1-
year period. If a 3 -year average is used, a 2.66% loss
would be indicated, but if a 2 -year average is deemed
more reasonable, then a 3.01% loss would be proper. If
the 1990 loss is unusual and is only a blip, then one
could expect the loss percentage to return to a normal
3% range. If such should be perceived, a 3 -year average
would be justified. Should it be noted that the loss
ratio was increasing then the length to determine an
average should have some relation to the time span
between rate cases. This method would lessen the chance
of over -or -under recovery. There were 5.5 years between
the previous and the present Test years used by Lone
33.
Bill R. McMorries & Associates, Inc.
Star (December 31, 1984 - June 30 1990). Since rates
are made prospectively, any method to be used in
determining gas loss should be used consistently. Our
suggestion is, that we use either the 2 -year average
(3.01;:) or the latest 1 -year period (3.03%). We would
suggest that the 3.03% be used.
Q What is this loss, in dollar amounts, and how does
it compare with Lone Star's request?
A The allowance for gas loss for R & C customers
amounts to $1,909,617 (see McM Exhibit b, Page 2) and is
$667,450 less than the $2,577,067 (4.24%) requested
(per page 1 of their filing).
In future cases, the Company should be required to
justify the allocation of all gas cost to various
customers. If the Company should fail to do so, all
losses should be assigned on a volumetric basis with the
percent loss determined from metered in- metered out
volumes. These metered in volumes should include
volumes through the regular city gates and through
special city gates (off transmission line to generation
plants and other customers) but not to include
customer's directly served from transmission line.
"An 34.
Bill R. McMorries & Associates, Inc.
OTHER OPERATING AND MAINTENANCE EXPENSES
Q McM Exhibit 6, page 1, shows $13,970,622 as a.
company expense under "Other Operating and Maintenance
Expense" but you show an adjustment of $238,911. Please
explain this proposed adjustment.
A See McM Exhibit 6, page 3. The Company has
estimated that labor expense will increase by 1.4% and
supplies and expenses will increase by 2.2 %.
The Company believes that it has determined a
upward trend in annual increases in operating costs
based upon past distribution divisions labor, supplies,
and expense cost.
Q Why have you disallowed this adjustment?
A Since it is not a know and measurable charge but an
estimate of a charge that might occur, it should be
removed.
f= "T'W0RT'1- 4 \O*T4 35.
DAI D A f_A T_._._'__ A, A __ T
—.91 . %. 1, ll.l AVL.Ila L %aaVl ta{.L.at LA—.
TAXES
(Other Than Income Tax)
Q The Company includes a total of $6,785,909 on lines
13, 14, & 15, page 1 of its rate filing of "Taxes Other
Than Income ". Are there any adjustments that you would
suggest?
A Yes.
Q What are they?
A Since I have adjusted revenues upward under present
rates, an adjustment also needs to be made for State
Occupation Tax and City Street and Alley Rental. The
composite State Occupation Tax is 1.894% and the
composite City Street and Alley Rental is 3.967 %, a
total of 5.861 %. This increase is calculated as
follows:
See McM Exhibit 6, page i & 4.
Total taxes other than income tax are:
Property - related $1,072,628
Payroll - related 478,206
Revenue - related 5,250,316
$6,801,150
r°•r•wrJVa *T*H+\ r•raxrcr-1 36.
R:11 A f A T :e Ar A , T__
UNCOLLECTIBLE EXPENSES
Q In uncollectible expenses, the Company proposes
$522,198 for the test year. Do you agree with this
amount?
A Yes. (See McM Exhibit 6, page 7.) Over the past
five years, the Company has experienced an average of
$486,439 or 0.44% per year in expenses (Account 904 -01).
$522,198 for the test year represents 0.57% of Sales and
this amount appears to be reasonable in the present
economical situation.
Q When is an account classified as uncollectible?
A When an account becomes 70 days delinquent then it
is charged -off as uncollectible. If it is collected
later, then it is credited back to the account.
Q Is the charge -off of uncollectible accounts a
fairly uniform amount during the year?
A No. The charge-offs during the test year varies
but are high in the summer months when the need for gas
(heating) was unimportant. Also, the high gas bills for
January and February were becoming 90 days past due.
37.
Bill R. McMorries & Associates, Inc.
The monthly charges to the uncollectible account —
for the test year are as follows:
January 1990 $ 60,361
February 44,697
March 43,967
April 50,137
May 33,378
June 53,447
July 1989 31,422
August 46,546
September 27,847
October 21,307
November 32,588
December 1989 49,105
Total $494,802
The Test year uncollectible amount was adjusted
to eliminate the Test Year Reserves of $185,062 (Pages
3 -4 Workpapers) at year end. Fort Worth's portion of
this year end reserve is:
0.43870 x $185,062 = $81,187
So the total system uncollectible for the Test
Year, including this year -end reserve adjustment is
$575,989. The amount allocated to R & C customers is
$552,198.
::: .... wcar!'I"FA ', CAM( 'C)I..U...r. r• 38.
DAI D A x X 4- ----: -- J2. A --- -- -- i—
MISCELLANEOUS EXPENSES
Q Please outline the expenses for the test year that
are related to Contributions, Advertising, Corporate
Management Fees, and Dues to the American Gas
Association.
A During the test year there are no charges (or
expenses) for contributions or donations. Contributions
made by the Company were charged to the stockholder.
Advertising expenses in the test year are as
follows:
1. Not subject to Limitations of GURA,
16 T.A.C., Paragraph 7.56, (Account 909)
Informational and Instructional $12,155
2.' Subject to Limitations of GURA,
(Accounts 913 and 930)
Institutional, Consumption Inducing,
and Other 156,974
Total $169,129
The Texas Railroad Commission amended it's rules
effective April 12, 1987 to allow all reasonable
advertising expenses for informational and instructional
purposes and up to 0.5% of sales revenue for
institutional, consumption inducing, and other
advertising expenses. The previous limitation had been
0.2 %.
39.
n:11 A Ted Ted__ :__ A, A----: --- T__
Q Did Lone Star exceed its advertising expense limit
of 0.5% of Sales?
A No. Based on a system adjusted revenue of
$113,661,310, $568,306 would be allowed in advertising
expenses subject to limitation. The Company spent less
than one -half the allowable amount ($156,974).
Q Please continue your explanation on miscellaneous
expenses.
A Through Account 922 -09, Lone Star charged corporate
management fees to its customers - the Fort Worth
Distribution System was charged $302,533 during the test
year for this service.
Through Account 930 -03, Lone Star charged (during
the test year) industry association dues of $30,774 for
payments to the American Gas Association.
We have not reduced or eliminated these charges
(corporate management fees and AGA dues) in the
preliminary cost of service. If this case is pursued,
extensive inquiry should be made concerning these
expenses and justification should be required. Also,
charges to these two accounts should be monitored
closely in the future to insure that the benefit matches
the cost.
P " "Tbdl7R'T4A \M LlJ(". _XF' 40.
R:II D A.f_Ad___.__ A, A ____:_ __ T�_
✓all a \� vll.1. - [ \JJW�16l.LJt l •
RATE DESIGN
Q The Company proposes to increase the customer
charges from $6.00 to $6.00 on Residential and from
$9.00 to $14.00 on Commercial customers. Do you concur
with this charge?
A No. One can justify the charge of 66.00 for
Residential and $14.00 for Commercial for customer
charges from a cost basis analysis. However it is my
recommendation that these charges be moved up in
increments to soften customer impact or rate shock for
low consumptions users. A more moderate increase of
$1.00 for Residential and $3.00 for Commercial is
recommended.
Q The Company has recommended an increase in
Residential charges of $3,786,959 or 6.46'% while they
suggest a $336,002 or 1.1% decrease in Commercial rates.
Do you agree with this rate design?
A No. To increase on rate class a significant 6.46%
and at the same time decrease another class 1.1% sends
mixed signals to rate payers. You are indicating cost
and thus rates are increasing in one instance and
stating the reverse in a second instant. Cost pressures
are still upward so a signal shouldn't be sent to
commercial customers indicating otherwise.
41.
Bill R. McMorries & Associates, Inc.
See McM Exhibit 7, page 1 for the suggested rate _
designs. This increases Residential rates by 2.1% and
Commercials customers by 0.05 %.
McM Exhibit 7, page 2, shows the proposed increase
by Cities.
F•'TWt1Ft "PF4 \PeA"UMM MN 42.
UAI D Ad_AX_----- -- A, A --- -- T -
Lllll lt• 1VA%- IV1V111% -a " L 133U1- 161C.a, lilt.•
McM Exhibit l)
Page 1
Lone Star Gas Company
Fort Worth Distribution System
TYE 6/30/90
Preliminary
ADJUSTED VALUE RATE BASE
R &
C Customers
Only
Company
Adjustment
C onsultant
O riginal Cost
Plant 1/
- --
- - --
- --
Less Depreciation 1/
- --
- --
- --
Net l/
54,480,458
(346,362)
54,134,096
Construction Work in Progress
5/ 8,664
(89.664)
0
Retirement Work in Progress
205,511
35
205,546
Working Capital 6/
2,550,866
(29,721)
2,521,145
Unrestored Tax 7/
(2,144,780)
(281,759)
(2,426,539)
Customer Deposits
(2,336,754)
0
(2,336,754)
Advances for Construction
(817,677)
O
(817,677)
Deferred Income Tax
(3,947,070)
(692)
(3,947,762)
Injury and Damage Reserve
(218,454)
(39)
(218,493)
TOTAL INVESTED CAPITAL 1/
$47,780,764
$(667,202)
$47,113,562
Current Cost
Plant 2/ - -- - -- - --
Less Depreciation 2/ Add 34,341,977 — - -- _ - --
Net 2; Add 34,341,977 141,830,338
Less Additions & Reductions 7,020,53
TOTAL CURRENT COST 82,122,741 134,809,804
ADJUSTED VALUE 82,122,741 3/ (8,700,306) 73,422,435 4/
Source - page 7 work papers
1/ L.GS p.7 -2 & McM Exhibit 1, p.2
21 LGS, p.7 -2 & McM Exhbit 1, p. 3
3/ 60'/. OC + 40% CCN
4/ 70% OC + 30'/. CCN
5/ McM Exhibit 1, page 4 $328,997 +- 9,219(.939780) of CWIP not
Completed or Closed
6/ McM Exhibit 2
7/ McM Exhibit 1, page 4
rr *1 **w C:1 m *T'M.4 a Fa 1'�ZT V F'i: n- tutM
DA D A T_A.T_ -- R, A ___ -- T
.-I . I I . %. 1, 1'1,1_ 1.1J K l \JJV . 4.vJI 1..�..
McM Exhibit 1
Page 2
Lone Star Gas Company
Fort Worth Distribution System - Total System
June 30, 1990
PLANT IN SERVICE AT ORIGINAL COST
LESS DEPRECIATION AND INVESTED CAPITAL
Improvements
149,082
63,635
Original
42.68
Original
Accumulated
Cost Less
35,671,859
Cost
DEPR
DEPR DEPR.
301,408
406,154
42.60
- City Gate
Plant In Servi
33,279
44,686
42.68
Distri Pl ant
20,188,542
7,934,785
12,253,757
Land
22,667
0
22,667 0
Land Rights
40,892
17,454
23,438 42.68
Structures &
1,024,694
41.70
House Regulators
Improvements
149,082
63,635
85,447
42.68
Mains
61,244,634
25,572,775
35,671,859
41.76
M &R STA EQPT - General
707,562
301,408
406,154
42.60
- City Gate
77,965
33,279
44,686
42.68
Services
20,188,542
7,934,785
12,253,757
39.30
Meters
6,060,789
2,579,648
3,481,141
42.56
Meter Installations
1,757,679
732,985
1,024,694
41.70
House Regulators
1,202,764
511,582
691,182
42.53
Hour Regulators Inst.
435,247
185,783
249,464
42.68
Other - Customer Premises
164
70
94
42.68
- Equipment
864,900
369,179
495,721
42.68
General Plant
7,144,321
3,625,666
3,518,655
50.75
TOTAL PLANT Its! SERVICE t 99,897,208 $ 41,928,249 $57,968,959 41.97
Adjusted for CWIP $57,590,333
Allocated to R & C - $54,134,096
Source: Work papers 7 -2 & 7 -6
r• r:w,st -.tr•, . c:)ri__nr Zr_•:
n:u D R, A----:---- r..,.
McM Exhibit 1
Page 3
Lone Star Gas Company
Fort Worth Distribution System - Total System
June 30, 1990
CURRENT COST NEW LESS ADJUSTMENT FOR AGE AND CONDITION
ADJ FOR
CCN DEPR. A &C 2/
Plant In Service
Dist Plant
Land 1/
Land Rights 1/
Structures &
Improvements 1 /
Mains
M &R STA EOPT - General
- City Gate
22,667 O O
40,892 42.68 17,454
149,082
194,720,496
1,850,560
96,422
Services 36,330,341
Meters 11,119,422
Meter Installations 3,820,860
Hol►se Regulators 1,539,970
Hour Regulators Inst. 1,205,897
Other - Customer Premises 1 / 164
- Equipment 1/ 864,900
General Plant 1/ 7,144,321
TOTAL PLANT IN SERVICE $258,905,994
Allocated to R & C (0.9398212)
1/ Original Cost
2/ Using Depreciation Revenue Ratios
1 t: 1,•1 t:, r- t:1 -. a l': C71\1 \Ld P „1:::
NET
CURRENT
COST
22,667
23,438
42.68
63,635
85,447
41.76
81,315,279
113,405,217
42.60
788,339
1,062,221
42.68
41,153
55,269
39.30
14,277,824
22,052.517
42.56
4,732,426
6,386,996
41.70
1,593,299
2,227,561
42.53
654,949
885,021
42.68
514,677
691,220
42.68
70
94
42.68
369,179
495,721
50.75
3,625,666
3,518,655
$107,993,950 $150,912,044
------ - - - - -- ------ - - - - --
$141,830,338
nAl D Ted lK.f__ :__ R, A_ I...
McM Exhibit i
Page 4
Lone Star Gas Company
Fort Worth Distribution System
TYE June 30, 1990
DISALLOWED CONSTRUCTION WORK IN PROGRESS
TRANSFERRED TO PLANT IN SERVICE
TOTAL SYSTEM
DISTRIBUTION:
Completion
ER NUMBER
Date
Amount
892609
10/05/90
$196,551
902002
8/02/90
30,383
902101
7/16/91
3,821
902125
7/30/90
2,403
902127
10/03/90
1,532
9022113
10/05/90
2,912
902129
10/03/90
2,398
902145
11/27/90
(100)
902198
1 /OB /91
127
902511
6/30/91
157
902512
8/06/90
128
902515
9/11/90
1,700
902527
6/30/91
8,935
902544
8/08/90
17,938
902560
7/10/90
14,706
902564
8/12/90
22,424
902570
7/18/90
7,494
902581
8/08/90
10,097
902583
8/25/90
2,363
902584
7/27/90
5,649
902585
7/25/90
6,694
902586
7/09/90
5,305
902587
7/29/90
1,663
902588
10/29/90
11,465
902589
7/27/90
2,031
902591
12/07/90
2,383
902596
7/10/90
690
902600
10/08/90
932
Misc
- - --
14,678
Uncompleted CWIP
- Direct
$ 377,459
DIVISION:
902126
7/10/90 - $2,660
Allocated to Total System
= 0.43870 x 2,660
= 1,167
TOTAL CWIP DISALLOWED
378,626
Allocated to R & C —
- Plant
in Service
(346,362)
- CWIP
(8,664)
Source: workpapers 7 -4A & 4B
F -'T Amr1'TF•4 a r) T rm PAIA I F`
Bill R. McMorries & Associates, Inc.
l/111 L\. 1YLl.lYl VlLII.J t..\. llla...
McM Exhibit 2
Lone Star Gas Company
Fort Worth Distribution System
TYE June 30, 1990
WORKING CAPITAL
TOTAL SYSTEM
1.
45 days annual 0 &M expenses
(oper maintenance,
customer accounts, sales
expenses, administrative
and general)
45/360 x (14,497,315 - 249,269 1/)
1,781,006
2.
Prepaid Insurance (Account 165 -1) 2/
80,792
3.
Insurance Premiums Advance (Account 165 -2)
2/ 0
4.
Prepayments -- Others (Account 165 -7) 2/
13,858
5.
Prepaid State Franchise Tax (Account 165 -8)
2/ 96,023
6.
Prepaid State Gross Recipts Tax
(Account 165 -10) 2/
134,300
7.
Prepaid Dues (Account 165 -11) 3/
0
B.
Prepaid Texas -State & City Sales & Use Taxes
(Account 165 -18, 19) 2/
0
9.
Materials and Supplies (Account 154 -1) 2/,
4/ 531,084
TOTAL SYSTEM
$2,637,063
Allocated to R & C (0.9560179)
$2,521,145
1 /
McM Exhibit 6, page 3
2 /
13 monthly average, page 7 -
3/
Omitted Ar_courit 165 -11
4/
Allocated by number of customers
(Distribution to Division = 145,515/331,698)
_
Page 7-
�
T I I. W, -, 1-
DA D A,f_A.f_•----
-- A, A -- - -:_ __ T�
l/111 L\. 1YLl.lYl VlLII.J t..\. llla...
McM Exhibit 3
Lone Star Gas Company
Fort Worth Distribution System
ALLOCATION OF UNRESTORED INVESTMENT TAX CREDIT 1/
Unrestored
Investment
Tax Credit
1971
1972'
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986 —
TOTAL SYSTEM
Allocated to R & C
Source - Page 7 -12
r- -t,w1.11- • +.H.L1111I!zniv °rc
17,584
51,445
35,933
62,510
56,148
75,729
48,773
121,127
158,396
186,274
319,133
323,885
389,892
399,135
306,915
28,584
$2,581,463
$2,426,539
-11 1\• IV-IY■ \ ILL 11.) %� L \JJV6.l Q {.\.J1 1111.•
McM Exhibit 4
Page 1
Lone Star Gas Compary
Fort Worth Distribution System
TYE June 30, 1990
REASONABLE BALANCE DETERMINATION
Balance To Original Cost Component
M E T H O D
1 2 3 4
Item:
Starting Balance
67.50
67.50
67.50
67.50
1.
Inflation (159.2 %)
1.875
3.00
4.00
7.50
2.
Quality of Service
Above Average)
(0.90)
(0.75)
(0.50)
(2.50)
3.
Growth ( -0.6% to 1.5 %)
0
0
0
0
4.
Need to attract Capital
(1.0%)
0
0
0
0
68.5
69.8
71.0
72.5
Range - 68.5% - 72.5'%
Use 70% Original Cost and 30% Current Cost New
a F.•6_F1 Ril MCA— . rL X.
Bill R. McMorries & Associates, Inc.
McM Exhibit 4
Page 2
Lone Star Gas Company
Fort Worth Distribution System
TYE 6/30/90
COMPONENTS FOR DETERMINING REASONABLE BALANCE
1. Inflation in Current Cost Study:
CCN -OC /OC = ($258,905,994 - 99,897,208) /99,897,208
= 159.2%
R. Quality of Service: Above Average
3. Growth:
Average Number of Customers for 12 Months Ending:
Dec. 31 1986 148,168
1987 148,149
1988 146,414 -0.6'% YR
1989 145,609
Total Mcf Sales for 12 Months Ending:
Dec. 31 1986 21,274,710
1987 22,345,479
1988 22,246,357 +1.5% YR
1989 22,241,130
4. Need to attract new Capital:
Net Original Cost at December 31:
1986 $50,374,326
1987 50,245,917
1988 50,6e5,545 +1.0% YR
1989 51,961,258
D:11 D A,f -A f------- -- R, A -- -- T...
L ill 1 \♦ l,�l.l,lVll�\.J t� ! IJJV\.l4F�J� a.��•
McM Exhibit 5
Page 1
Lone Star Gas Company
Fort Worth Distribution System
TYE June 30, 1990
RATE OF RETURN SCHEDULE
Capitalization and Rates a 12/31/90
1. 12.75% to Equity
Debt
4e.00%
a
9.10%
= 4.37%
Preferred
3.90
a
8.47
= 0.33
Common
49.10
a
12.75
= 6.13 10.83'/.
2. 12.507. to
Equity
Debt
49.00%
a
9.10%
= 4.37%
Preferred
3.90
a
9.47
= 0.33
Common
49.10
a
12.50
= 6.01 10.71%
3. 13.4% to
Equity
Debt
49.00%
a
9.10%
= 4.37'%
Preferred
3.90
a
9.47
= 0.33
Common
4e.10
a
12.25
= 5.99 10.59%
Return on Equity 12.75%
Return on Adjusted Value 6.95%
12.50% 12.25%
6.97% 6.60%
Source: Enserch Ratios at 12/31/90
Rate at 12/31/90 - Variable 1992 = 14.375%
Series D - 9.10%
Series E - 9.00%
r—T'WOFCTFI a MtemFR"t I. Mez. I
LIM D A f,.A f : fir A T.,.-
Mr_M Exhibit 5
Page 2
Enserch Corporation
Embedded Cost of Senior Long -Term Debt
December 31, 1990
(Amounts in $000's)
6 1/8'/. Sinking Fund
Debentures Due 1992
7 1/4% Sinking Fund
Debentures Due 1993
7 1/2% Sinking Fund
Debentures Due 1996'
7.65'/. Sinking Fund
Debentures Due 1999
8.95% Sinking Fund
Debentures Due 1999
9 3/4'/. Sinking Fund
Debentures Due 2001
8 1/2% Sinking Fund
Debentures Due 2002
10 7/9'/. Sinking Fund
Debentures Due 2005
Variable Rate Note Due 1992
5.0% Note Due 1993
11 5/8'/, Note Due 1993
9.11% Note Due 1994
9.7'/ Note Due 1994
11 3/8'/ Note Due 1995
9.06'% Note Due 1999
Either Loans
Total Senior Long -term Debt
Annual Amortization of Debt Exp.
Annual Amortization of Premium
Annual Amortization Discount
Net Senior Long -term Debt
* Latest Rate 14.375%
i T win r2 /'4.4 . 1._`( r7 C5: T7 T'
$768,123 9.530% $73,201
o it n r_X r_._-__ M, n r
inu a\. 1V1� Lvwu1%_a %-A. i 1a v%.tnLw LLI ..
Interest
Annual
Balance
Rate
Interest
($)
M
($)
8
6.125%
494
9,747
7.250%
707
13,092
7.500%
992
12,325
7.650%
943
25,625
8.950%
2,293
23,716
9.750%
2,075
2e,177
8.500'/.
2,395
48,559
10.875%
5,281
29,186
14.375%
4,195
113,700
5.000%
5,685
100,000
11.625'%
11,625
100,000
9.110%
9,110
29,316
8.700'/,
2,550
125,000
11.375%
14,219
100,000
9.060%
9,060
5,994
9.505'/.
569
$772,490
$72,193
(3,788)
921
4
(3)
(583)
100
$768,123 9.530% $73,201
o it n r_X r_._-__ M, n r
inu a\. 1V1� Lvwu1%_a %-A. i 1a v%.tnLw LLI ..
McM Exhibit 5
Page 3
ENSERCH CORPORATION
COST OF ALL DEBT AND PREFERRED STOCK OUTSTANDING
December 31, 1990
(Amount in $000
PREFERRED STOCK
Adj. Rate Cumulative
Preferred, Series D $ 75,000 9.10% * 3.900
Adj. Rate Cumulative
Preferred, Series E 100,000 8.00% * 4.571
Total Preferred $ 175,000 8.471%
r- f i c::r.:Ir:..T>x,F-caca
D• t l D ,..f ,1 A" 4, A
T
!lilt 1\. (V it-LV 11 Pt M.J It ( \.I JVl.16l1.J1 111..
Weighted
Average
Balance
Rate
Rate
( )
( '/, )
M
TOTAL D EBT
Senior Long -term Debt
$768,123
9.530%
6.332%
Convertible Subordinated
Debentures
212,737
8.719%
1.605%
Short -term Debt
175,077
7.675%
1.162%
TOTAL DEBT
$1,155,937
9.099%
PREFERRED STOCK
Adj. Rate Cumulative
Preferred, Series D $ 75,000 9.10% * 3.900
Adj. Rate Cumulative
Preferred, Series E 100,000 8.00% * 4.571
Total Preferred $ 175,000 8.471%
r- f i c::r.:Ir:..T>x,F-caca
D• t l D ,..f ,1 A" 4, A
T
!lilt 1\. (V it-LV 11 Pt M.J It ( \.I JVl.16l1.J1 111..
McM Exhibit 5
Page �-
GAS DISTRIBUTION COMPANIES
EQUITY RATIOS
FY 1989
Alantic Gas Light
Brooklyn Union Gas
Indiana Energy
Laclede Gas
Northwest Natural
Washington Gas Light
Average
r'-'ri�r:�rr'r'F..� e [.. =.:rai..i'rvr,•.�.q•r
Equity
43%
44
50
60
43
53
48.8%
❑:11 D A f_A If_ :__ AT A ____._. __ I ..
L /lll 1 \• L�1\.l�>Vll II.J K L >JJVl.l4l.\.J� >ll�.•
-... -. — < ......
McM Exhibit 5
Page 5
NATURAL
GAS UTILITY
COMPANIES
DIVIDEND YIELD
Market
Price
Dividend
(Avg.)
Yield
Alantic Gas Light
$2.02
$29.54
6.84%
Brooklyn Union Gas
1.87
27.03
6.92
Indiana Energy, Inc.
1.36
19.82
6.86
Laclede Gas
2.39
29.88
8.00
Northwest Natural
1.67
24.38
6.85
Washington Gas Light
2.06
29.41
7.00
Average Dividend Yield
7.08'/.
Source - Schedule 7
1" "'T W 4:J F2'T 1 -J . I:> v cf r• ri Y ]. •!
R:II A 1�f T� f AT A--;-- r..,
-... -. — < ......
a
McM Exhibit 5
Page b
NATURAL GAS UTILITY COMPANIES
GROWTH RATES
(10 -Year Period)
Average Growth Rate, 6.0'%
DCF = (7.OB %) 1.05 - 6.00 = 13.43
Market to Book 1.1
Indicated Return needed to correct book value = 12.21%
r- -4 v CIR0Wren
Bill R. Mckforries & Associates, Inc.
EPS
DPS
Alantic Gas Light
3.5`/.
10.0%
Brooklyn Union Gas
5.0%
6.0%
Indiana Energy, Inc.
4.0%
7.0%
Laclede Gas
6.0%
9.5'%
Northwest Natural
4.0%
6.5%
Washington Gas Light
5.0%
5.5%
Average
4.6%
7.4%
Average Growth Rate, 6.0'%
DCF = (7.OB %) 1.05 - 6.00 = 13.43
Market to Book 1.1
Indicated Return needed to correct book value = 12.21%
r- -4 v CIR0Wren
Bill R. Mckforries & Associates, Inc.
McM Exhibit 5
Page 7
Six Natural Gas Companies
RETURN ON AVERAGE COMMON EQUITY
YEAR RETURN
1985 15.3%
1986 12.6%
1987 12.9%
1988 13.5%
1989 13.0%
5 -Year Average 13.46%
Market to Book Average 1.2% (approx.)
Indicated return corrected
for book value of 1 11.2% ( approx.)
(Same gas companies shown on Exhibit
6, page 5)
r: rwt_ir 'T'V4 a ra.uu- :E::
Rill R, McMorries & Associates, Inc.
McM Exhibit 6
Page 1
Lone Star Gas Company
Fort Worth Distribution District
SUMMARY OF REVENUES, EXPENSES, TAXES AND INCOME
WITH PRESENT RATES AND PROPOSED RATES
TYE 6/30/90 - R & C Only
Company Consultant
($) Adjustment Amount
With Present Rates
Operating Revenues
Operating Expenses:
Gas Purchased
Other Operation & Maintenance
Taxes other than Income Taxes
Provision for Depreciation
Interest on Customer Deposits
Interest on Customer Advances
Total Operating Exp. Before FIT
$90,691,558 $253,250
63,294,498
13,970,622
6,785,909
2,416,264
156,066
18,912
86,642,271
Net Operating Income Before FIT 4,049,287
Federal Income Taxes _ 643,838
Net Operating Income 3,405,449
WITH PROPOSED RAT
Operating Revenues
94,407,371
Operating Expenses:
Gas Purchased
Other Operation & Maintenance
Taxes Other than Income Taxes
Provision for Depreciation
Interest on Customer Deposits
Interest on CUstomer Advances
Total Operating Exp. before FIT
Net Operating Income before FIT
Federal Income Taxes
Net Operating Income
Revenue Increase Proposed
1/
McM
Exhibit
6,
page 4
2/
McM
Exhibit
6,
page 2
3 /
McM
Exhibit
6,
page 3
4/
McM
Exhibit
6,
page 6
5/
McM
Exhibit
6,
page 4
6 /
McM
Fxhibit
6,
page 8
r'''T I.J(
°1 m ";IJM1*2 x r I .. 1.
63,323,424
13,970,622
7,003,815
2,416,264
156,066
18,912
86,889,103
7,518,268
1,823;292
5,694,976
$ 3,715,813
(443,925)
(238,911)
15,241
(9,223)
0
0
(676,818)
(472,851)
(238,911)
(104,525)
(9,223)
0
O
(825,510)
90,944,808
2/ 62,850,573
3/ 13,731,711
6,801,150 1
2,407,041
156,066
18,912
85,965,453
4,979,355
973,865 4
4,005,490
92,619,269
62,850,573 2
13,731,711
6,899,290 5
2,407,041
156,066
18,912
86,063,593
6,555,676
1,509,814 4
5,045,862 6_
$ 1,674,461
Source - Page 1 Work Papers
Bill R. McMorries & Associates, Inc.
McM Exhibit 6
Page 2
Lone Star Gas Company
Fort Worth Distribution System
June 30, 1990
GAS PURCHASES
R & C Only
MCF
PRICE*
4.02
4.02
3.3860
AMOUNT
$37,781,109
23,159,847
Residential
Commercial
Industrial
Public Authority
Electric Generation
Other
Unaccounted For (R &C)
Company Used Gas
TOTAL
9,398,286
5,761,156
0
0
O
O
15,159,442
475,029
17,189
15,651,660
Gas Loss 3.03%
Factor 1/(1- .0303) - 1.0313
$62,850,573
Source: Page 2 & 1 workpapers
1/ Company used Gas (except Unaccounted for) is recovered
elsewhere through expenses.
f "'r W(7jMrH . C7 rA en V , k.a I - e :H . 1.
$60,940,956
4.0200 1,909,617
4.0200 1/ 0
Bill R. McMorries & Associates, Inc.
McM Exhibit--6
Page 3
Lone Star Gas Company
Fort Worth Distribution System
TYE June 30, 1990
OTHER OPERATION AND MAINTENANCE EXPENSE
R & C Only
Customer Accounts
Labor
Company
Adjustment 1/
Consultant
Distribtion 0 & M
997,883
(21,482)
976,401
Operation: Labor
1,770,748
(24,143)
1,746,605
S & E
934,651
(19,959)
914,692
Mantenance: Labor
1,118,691
(15,252)
1,103,439
S & E
1,141,699
(24,380)
1,117,319
Customer Accounts
Labor
1,819,982
(25,127)
1,794,855
S& E
997,883
(21,482)
976,401
C ustomer Service &
552,198
O _
_ 552,198
Information
Labor
45,712
(632)
45,080
S & E
13,462
(289)
13,173
Sale
(86.328)
6.210,820
S & E
Labor
345,264
(4,767)
340,497
S & E
363,955
(7,835)
356,120
Administrative & General
Labor
1,196,751
(16,407)
1,180,344
S & E
3,669,626
(78,638)
3,590,988
Uncollectible Accounts
552,198
O _
_ 552,198
Total Other O & M
Expense
$13,970,622
---- - - - - --
((238,911)
--- - - - - --
$13,731,711
---- - - - - --
Summary Other O &M Expense
Labor
6,297,148
(86.328)
6.210,820
S & E
7,121,276
(152,583)
6,968,693
Uncollectible Acc.
_ 552,198
_ O
552098
Total Other O &M Exp.
$13,970,622
---- - - - - --
$(238,911)
--- - - - - --
$13,731,711
----- - - - - --
1 / Eliminated adjustment No. 11 (Project 1.4% increase in Labor and
2.2'/, in Guppies & Expense. Workpapers 1 -3c
r•rworvTJI, ..r,. t
McM Exhibit 6
Page 4
Lone Star Gas Company
Fort Worth Distribution System
TYE December 31, 1990
CALCULATION OF TAXES OTHER THAN FIT
Proposed Rate:
Taxes under present rate
Property Related $1,072,628
Payroll Related 478,206
Revenue Related 5,250,316 2/
Increase in Taxes due to proposed rate:
Proposed Net Operating
Income before FIT $6,555,676 1/
Present Net Operating
Income before FIT 4,979,355 1/
INCREASE in Net
Operating Income 41,576,321
Additional Taxes
(1,576,321)/1 - .05861) x 5. 061%
TAXES UNDER PROPOSED RATE
1/ McM Exhibit 6, page 1
Source - page 1, workpapers
2/ McM Exhibit 6, page 5
46,801,150
98,140
$6,899,290
R:11 D 7%A AIf_ :__ Rr A
McM Exhibit 6
Page 5
Lone Star Gas Company
Fort Worth Distribution System
TYE 6/30/90
CALCULATION OF REVENUE RELATED TAXES
------------------------------------
Residential-
($5e,579,476 + 1,005,014 +
196,246) x .058610 = $ 3,503,749
Commercial -
(9'31,016,757 + 90,311 + 56,336)
x 0.058610 = 1,826,487
$ 5,330,236
Company Present Rates = $5,235,473
Add $253,250 x .058610 = 14,843
TOTAL
$5,250,316
Source: Workpapers, p. 1, 1 -1c
F "7'L.1) °)F'Y "'1' F 1', C::(_) F'2 F 'T'AX _ 1
Bill R. McMorries & Associates, Inc.
McM Exhibit 6
Page 6
Lone Star Gas Company
Fort Worth Distribution System
TYE 6/30/90
FEDERAL INCOME TAX CALCULATION
R & C Only
Company
Consultant
At P resent Rates
FIT Calculation with Revenues
and Income
Net Operating Income before FIT
Less Cost of Debt
Less Capitalized Overhead and Taxes
Taxable Income
4,049,287
(2,098,531)
29,423
1,980,179
4,979,355
(2,057,920)
29,429
2,950,864
Tax at 34% of Taxable Income
Adjustment to FIT
TOTAL FEDERAL INCOME TAXES
673,261
(29,423)
643,838
1,003,294
(29,429)
973,865
At Propos Rates
FIT Calculation with Revenues
and Income
Net Operating Income before FIT
Less Cost of Debt
Less Capitalized Overhead and Taxes
Taxable Income
Tax at 34% of Taxable Income
Adjustment to FIT
TOTAL FEDERAL INCOME TAXES
7,518,268
(2,098,531)
29,423
5,449,160
1,852,715
(29,423)
1,823,292
6,555,676
(2,057,920) 2/
29,429
4,527,185
1,539,243
(29,429)
1,509,814
21 Interest expense on Debt:
48.00'/. x 47, 113,562 x 9.10'%
F' t W r... r•• t H \ F wr <d 'T• ,*4 m [::.0 .. 7.
DAI D A.f_A,r
A, A - -- -- i..._
McM Exhibit 6
Page 7
Lone Star Gas Company
Fort Worth Distribution System
TYE June 30, 1990
UNCOLLECTIBLE EXPENSES
Year
Ending
Per
Percent
12/31
Books
Sales
1986
$427,372
0.43%
1987
457,688
0.44%
1988
552,825
0.49%
1989
499,512
0.41%
1990
494,802
0.44%
AVERAGE $ 486,439 0.44'/,
* 6/30/90
Bill R. McMorries & Associates, Inc.
McM Exhibit 6
Page 8
Lone Star Gas Company
Fort Worth Distribution System
TYE 6/30/90
NET OPERATING INCOME
Net Operating Income = Rate Base x Rate of Return
Rate Base x Rate of Return = Cost of Capital (or above)
Cost of Capital:
Debt: 48.00% a 9.10% a $47,113,562 = $2,057,920
Preferred: 3.90% a 8.47'/. a 47 = 155,630
Common: 48.10% a 12.50% a7 47,113,562 = 2,832,703
$5,046,253
Rate Base x Rate Return:
$73,422,435 x 6.87 = $5,044,121
Invested Capital x Cost of Capital:
$47,113,562 x 10.71% _ $5,045,862
P"'T' lW 0 R74-4 \ N Bt 'T' 1:11=" T. N . 1.
Bill R. McMorries & Associates, Inc.
McM Exhibit 6
Page 9
Lone Star Gas Company
Fort Worth Distribution System
June 30, 1990
OTHER REVENUE
Accounts 488 and 495 C O M P A N Y
Rates Revenue
Present Proposed Present Proposed
Increase
Reconnect Charges and
Miscellaneous (30,836)
$20.00
$25.00
Return Check Charges
206,423
112,676
(4,599 Transactions)
7.50
7.50
Revenue from Prepayment
of State Sales Tax
No
Change
Collection Charges
(56,388 Transactions)
5.00
7.00
Rent Revenue
No
Change
Proposed Adjustment
Source: Page 1 & 8 -3 workpapers
r�••T•whrr•rf� . c7•rf+r.-r•.rr:. =..v
$625,590 $ 154,180
34,723
O
204,989
0
206,423
112,676
23,600
0
$1,095,325 $266,856
$266,856
R:I1 D X x -A d_- - °- -- S2. A - -- T-
u.Ll L \. L.1\.lYLVLIII.J tt [ 1JJUl 14 6LJ1 Llll..
McM Exhibit 7
Page 1
Lone Star Gas Company
Ft Worth Distribution System
RATE DESIGN
R & C Increase $1,674,637 (1.84%)
1. Increase $1,252,689 in Residential Charges +2.13%.
Increase $155,092 in Commercial Rates +0.50%.
Increase Other Revenue $266,856.
No Winter- Summer difference in Customer Charge.
RESIDENTIAL
Present
Company Proposed
Consultant
Peak 141,099
Sumer Winter
698,722
Commercial:
Customer Charge
6.00 6.00
$8.00
$7.00
All MCF
4.9346 5.2846
--
--
Peak Period
- -- - --
5.3020
5.2020
Off Peak
- -- - --
5.0520
4.9520
COMMERCIAL
Customer Charge $9.00 $ 9.00 $14.00 $12.00
All MCF 4.9346 5.2846 -- --
First 20 MCF - -- - -- 5.3112 5.4478
Next 30 MCF - -- - -- 5.0112 5.1478
Over 50 MCF - -- - -- 4.8612 4.9978
2. Operating Revenue at proposed rates.
Operating Revenue Required $92,619,269
Less:
Other Revenue (1,362,181) $91,257,088
Less Customer Charges:
Residential, 1,596,348 bills @ $7.00 (11,174,436)
Commercial, 145,632 bills a $12.00 (1,747,584)
Cost to recover through MCF rate $78,335,068
MCF Rate:
Residential in
Peak 9,257,187 Mcf a $5.2020
48,155,887
off
Peak 141,099
Mcf a $4.9520
698,722
Commercial:
First 20 Mcf
1,236,690 @
5.4478
6,737,240
Next 30 Mcf
873,449 @
5.1478
4,496,341
Over 50 Mcf
3,651,017 a
4.9978
18,247,053
$78,335,243
Source: Page 8
F "TW(::)FiT 1.1 a F t:-",. tq ri
n:II A A,f_A.f_ : Ar A f...
✓a.a a \• a.aa.a.aViai\..a �.\. 4 .�1.�V\.•c... \.�� .�...•
McM Exhibit 7
Page 2
LONE STAR GAS COMPANY
FORT WORTH DISTRIBUTION SYSTEM
COMPARISON OF
LONE STAR AND CONSULTANTS PROPOSED REVENUE INCREASE
Lone Star
Proposed
Fort Worth
Henbrook
Crowley
Edgecliff Village
Everman
Forest Hill
Haltom City
K.enneda l.e
Lakeside
Lake Worth
North Richland Hills
Rendon
Richland Hills
River Oaks
Sansom Park Village
Watauga
Westover Hills
Westworth Village
White Settlement
All Other
$2,610,154
59,332
40,943
16,190
40,515
62,410
253,761
20,162
7,288
46,397
150,031
18,309
79,694
83,851
46,007
(35,832)
10,431
30,978
100,569
74,623
Total Increase
r. -t7 Mi�r- th \r .: "mp .u% 9.
$3,715,813
Consultant
Proposed
$1,176,834
27,434
18,266
6,184
21,147
27,835
124,863
11 2e8
2,705
23,360
77,863
8,337
35,493
37,384
23,874
(64,073)
1,616
12,928
49,359
51,939
$1,674,636
Bill R. McMorries & Associates, Inc.
APPENDIX A
QUALIFICATIONS AND EXPERIENCE
BILL R. McMORRIES
NAME AND ADDRESS
Bill R. McMorries
2907 Harmony
Amarillo, Texas 79106
EMPLOYER
McMorries & Associates, Inc
Consulting Engineers
6300 Canyon Drive
Amarillo, Texas 79109
CAPACITY WITH EMPLOYER
President, McMorries & Associates, Inc. since
1954
R:11 A 7%A A if A r A_ i...
"..a 1. - �.1.1Vll Il.J - A ,JaUI .4-j ll.V.
McM Exhibit 7
Page 2
t
LONE STAR GAS COMPANY
FORT WORTH DISTRIBUTION SYSTEM
COMPARISON OF
LONE STAR AND CONSULTANTS PROPOSED REVENUE INCREASE
Q:11 D A ,f _A d_ :__ AT A ____:_. __ i...
L 111 1 \• A ♦1\.1�lVlal\.J to 11JJV\.141.\.J� aal�r•
Lone Star
Consultant
Proposed
Proposed
Fort Worth
$2,610,154
$1,176,834
Henbrook
59,332
27,434
Crowley
40,943
18,266
Edgecliff Village
16,190
6,184
Everman
40,515
21,147
Forest Hill
62,410
27,835
Haltom City
253,761
124,863
Kenned a 1. a
20,162
1 1 288
Lakeside
7,288
2,705
Lake Worth
46,397
23,360
North Richland Hills
150,031
77,863
Rendon
18,309
8,337
Richland Hills
79,694
35,493
River Oaks
83,851
37,384
Sansom Park Village
46,007
23,874
Watauga
(35,832)
(64,073)
Westover Hills
10,431
1,616
Westworth Village
30,978
12,928
White Settlement
100,569
49,359
All Other
74,623
51,939
Total Increase
$3,715,813
---- - - - - --
$1,674,636
---- - - - - --
Q:11 D A ,f _A d_ :__ AT A ____:_. __ i...
L 111 1 \• A ♦1\.1�lVlal\.J to 11JJV\.141.\.J� aal�r•
EDUCATIONAL BACKGROUND
AND
PROFESSIONAL_ EXPERIENCE
Educational Bac
Bachelor of Science degree in Civil Engineering
from the University of Oklahoma, 1949
Mater of Civil Engineering degree from the
University of Oklahoma, 1950
Parh -lor of Laws degree from the American School
of l r) "J. Chicago, 1951
Professional Licenses
Regi stered Professional Engineer
Texas No. 10593 (1953)
01 1 ahoma No . 2918 ( 1954 )
clew Me>+ i c o No . 2 l E36 ( 1956 )
Professional ExLrience
After graduation Mr. McMorries began his professional
career with llasie & Green, a firm of consulting engineers in
I_uhbnck. While with Hasie & Green he served as design
engineer ()Ti municipal uti li t.ies including gas, water ,
sanitary and storm sewer, telephone and electric systems. In
December - , 152 he r to work as a consulting engineer
r,rrir =r thr- T of "B. R. Mr ". After one and one.
$ 1 11' 1 ,, hr- prpc.idrj)r of thr+ newly forme -1'i company of
rh9nr r 0F, - -nc i a t; es , 11)v , , l h i s firm now serves a1',
c oric :u l tar � �. for some W)+- 1'_i tics, iii the Panharrci l c' area.
Rill R. McMorries & Associates, Inc.
Oualifications,
o f
Bill R. McMorries
-----------------
eDUCATIONAL BACKGROUND.-
Bachelor of Science degree in Civil Engineering from the
University of Oklahoma, 1949;
Master Df Civil Engine n
erig e f niv
degree from the Uersity
of Oklahoma, 1950;
Bachelor of Laws degree from the American School of Low,
Chicago, 1951.
PROFESSIONAL LICENSES:
Registered Professional Engineer
----------------------------------
Texas No. 10593 (1953),
Oklahoma No. RGIS (1954)
New Mexico No. 8186 (1956)
PROFESSIONAL EXPERIENCE:
After graduation Mr. McMorries began his professional
careor oith Hasie & Green, a firm of consulting engineers
in Lubbock. While with Hasie & Green he served as design
engineer on municipal utilities including gas, water,
sanitary and storm sewer, telephone, and electric systems.
In December, 195E, he resigned to work as a consulting
engineer under the name of "B. R. McMorries." After one and
one-half years, he became president of the newly formed
company oF McMorrien & Associates. This firm now serves as
consultants for some 30+ cities in the Panhandle area.
His duties as a consulting engineer involves estimating
construction costs, preparing plans and specifications,
recommending award of construction bids, inspecting and
supervising construction work. Since 1951 he has worked in
rate cases encompassing telephone utilities, gas utilities!
electric utilities. water utilities, sanitary sewer
uti Li. hies, and cable television. He has participated or
directed work in all areas relating to operating revenue,
expenses, depreciation vate of return, cost of debt capital,
and rate base.
Q: I 1 0 it If 'K If AT A T__
_... .1. —.1 w -a aawI a l 0 A.—
PREVIOUS EXPERIENCE:
Mr. McMorries has been actively involved in reviewing
rate increase requests for the following entities:
CITY OF ABILENE, TEXAS
Southwestern Bell Telephone Company
Lone Star Gas Company
CITY OF AMARILLO, TEXAS
Southwestern Bell Telephone Company
Southwestern Public Service Company
CITY OF BONHAM~ TEXAS
General Telephone Company
CIlN OF BOR8ER, TEXAS
Southern Union Gas Company
Southwestern Public Service Company
CITY OF BRADY, TEXAS
\ Brady Municipal Gas Company
CITY OF BROWNFIELD, TEXAS
General Telephone Company
CITY OF BROWNS«ILLE, TEXAS
Rio Grande Valley Gas Company
Central Power & Light Company
CITY OF BROWNWOOD, TEXAS
General Telephone Company
CITY OF BRYAN, TEXAS
General Telephone Company
CITY OF BURKBURNETT, TEXAS
Lone Star Gas Company
Texas Electric Service Company
CITY OF CANADIAN, TEXAS
High Plains Gas Company
Canadian Power & Light Company
CITY OF CANYON, TEXAS
Pioneer Natural Gas Company
Southwestern Public Service Company
CITY OF CHILDRESS, TEXAS
Lone Star Gas Company
Southwestern Bell Telephone Company
BM R. McMotries & Associates, Inc.
CITY OF CLARENDON, TEXAS
Clarendon Gas Company
CITY OF CLAUDE, TEXAS
General Telephone Company
CITY OF COLLEGE STATION, TEXAS
General Telephone Company
CITY OF CORPUS CHRISTI, TEXAS
Central Power & Light Company
CITY OF DALLAS, TEXAS
Lone Star Gas Company
CITY OF DIMMITT, TEXAS
Continental Telephone Company
Pioneer Natural Gas Company
Southwestern Public Service Company
CITY OF DUMAS, TEXAS
Continental Telephone Company
CITY OF EAGLE PASS, TEXAS
Central,Power & Light Company
CITY OF EDINBURGH, TEXAS
Rio Grande Valley Gas Company
CITY OF EL PASO, TEXAS
Mountain Dell TRIephone Company
Southern Union nas Company
El Paso Electric CompartV
CITY OF FLOYDADA, TEXAS
Pioneer Natural Gas Company
Floydada Municipal Electric Company
CITY OF FORT WORTH, TEXAS
Lone Star Gas Company
Texas Electric Service Company
CITY OF FRITCH, TEXAS
Continental Telephone Company
Pioneer Natural Gas Company
CITY OF GAINESVILLE, TEXAS
Lone Star Gas Company
CITY OF GARLAND, TEXAS
Lone Star Gas Company
CITY OF GRAND PRAIRIE, TEXAS
Lone Star Gas Company
CITY OF HARLINGEN, TEXAS
Rio Grande Valley Gas Company
Central Power & Light Company
CITY OF HEREFORD, TEXAS
Southwestern Bell Telephone Company
Pioneer Natural Gas Company
Southwestern Public Service Company
CITY OF HOUSTON, TEXAS
Houston Power & Light Company
CITY OF HUNTSVILLE, TEXAS
Southwestern Bell Telephone Company
CITY OF IRVING, TEXAS
Lone Star Gas Company
Texas Power & Light Company
CITY OF LITTLEFIELD, TEXAS
General Telephone Company
Pioneer Natural Gas Company
CITY OF LUBBOCK, TEXAS
Southwestern Bell Telephone Company
Pioneer Natural Gas Company
CIlY OF MCALLEN, TEXAS
Southwestern Bell Telephone Company
Rio Grande Valley Gas Company
Central Power & Light Company
CITY OF MIDLAND, TEXAS
Southwestern Bell Telephone Company
Pioneer Natural Gas Company
CITY OF MISSION, TEXAS
Rio Grande Valley Gas Company
CITY OF MULESHOE, TEXAS
General Telephone Company
-
-
CITY OF NACOGDOCHES, TEXAS
Southwestern Bell Telephone Company
_
_
CITY OF ODESSA, TEXAS
Southwestern Bell Telephone Company
Pioneer Natural Gas Company
nx/ o xx_Ax : _ v. ^ : _' ,
~'^. .. ......... ~. '`ja~`4``", "..
CITY OF PANHANDLE, TEXAS
General Telephone Company
CITY OF PECOS, TEXAS
Southern Union Gas Company
CITY OF PERRYTON, TEXAS
General Telephone Company
High Plains Gas Company
Community Public Service Company
CITY OF PLAINVIEW, TEXAS
Pioneer Natural Gas Company
CITY OF PLANO, TEXAS
Lone Star Gas Company
CITY OF RICHARDSON, TEXAS
Lone Star Gas Company
CITY OF SHERMAN, TEXAS
Southwestern Bell Telephone Company
CITY OF SILVERTON, TEXAS
Southwestern Bell Telephone Company
CITY OF SPEARMAN, TEXAS
General Telephone Company
High Plains Gas Company
CITY OF STRATFORD, TEXAS
Pioneer Natural Gas Company
CITY OF TULIA, TEXAS
Continental Telephone Company
Pioneer Natural Gas Company
Southwestern Public Service Company
CITY OF VERNON, TEXAS
Southwestern Bell Telephone Company
Lone Star Gas Company
CITY OF VEGA, TEXAS
Southwestern Public Service Company
CITY OF WELLINGTON, TEXAS
Lone Star Gas Company.
CITY OF WESLACO, TEXAS
Rio Grande Valley Gas Company
ON! D I XAL X ----
l 111 1%. 1Y11-1Y1kJLL1%-3 %dL tA33ULId6L;3� 11%-.
REPRESENTATION BEFORE THE TEXAS PUBLIC UTILITIES COMMISSION;
Dockets 79, 8l, 91, 522, 527, 1517, 1789, 1813, 1861,
2321-24, 2641, 3006, 3040, 3093, 3510, 3522, 3690, 3716,
3780, 4079, and others.
Bill R. McMorries & Associates, Inc.
Appendix B
REASONABLE BALANCE DETERMINATION
1. Metho
The midpoint of the reasonable balance range (67.5 %) was
selected as the beginning of this study since it appears to be an
impartial starting poi.nt. The midpoint rationale was used by the
Court in the Alvin case (1956) when a 50% balance to original cost
was selected - 50% was exactly midway between the constraint outlined
for the reasonable balance.
The second step was to select factors to be considered in
making adjustments to the starting balance (67.5s). The four
factors outlined in PURA (1975) were selected- Inflation, Ouality
of Service, Growth, and the Need to Attract Capital.
The next step was to determine the weighting due each of the
four adjustment factors. The discussions in PURA (1975) offer
little or no assistance in this area. Since there seems to be no
constraints, rules, or guidelines provided to determine the weights
or importance to be given these factors, it appears that the regulatory
authority is free to select any weighting that would be reasonable
and fair.
To aid in making final reasonable balance and determination,
consideration was given to four separate weighting methods, many of
which embrace similar concepts and rationale.
1
W11 D AY
On all four methods, the same factors were recognized. The
same 67.5% starting point balance is also recognized and a total
variance from the starting point is limited to 7.5% in either direction.
The first method gives equal weight to each of the four factors.
This provides an influence factor of 1.875% for each.
The second method is to assign more weight to the inflation
factor than that assigned to the other three. The reason for extra
weight for inflation is threefold: (1) If it were not for inflation
(or deflation) there would be no need for the balance; (2) other
regulatory authorities seem to place more emphasis on inflation than
any other factor in determining fair value rate bases; (3) Alvin
speak., c,l.,_y of economic change (inflation /deflation) when discussing
the reasonable balance determination. There appears to be at least
twice as much emphasis placed on inflation than any other factor.
In this method, twice as much weight was assigned to inflation
as to the other three factors. Using the same 7.5% variable, the
influence for each of the four factors under this method would be
as follows:
Maximum Influence
Inflation 3%
Quality of Service 1.5%
Growth 1.5%
Need to attract Capital 1.5%
2
A, A ____- -- i---
. •.la N. ara \.lravll ll..l <-%. L 133a/l.14ll.a, Alll .
The third method is similar to the second method but it places
more emphasis on inflation and .less on quality of service and
growth. The rationale is that quality of service should play only
a minor part in the determination of the balance since it appears
to be a bonus or penalty factor and does not logically affect the
need for a higher or lower rate base. On the other hand, inflation
does reasonably affect the value of the property. In Texas, there
seems to be no precedent or guidelines in previous ratemaking
history placing any emphasis on quality of service when determining
the rate base.
Possibly, growth should be given less weight since it also
tends to affect the need to attract capital. In many cases, above
normal growth requires more than average capital expenditures;
therefore, to five equal weight to growth and the need to attract
capital, factors would be a type of double adjustment for the same
basic factor.
Using the above rationale, a reasonable weighting influence
could be as follows:
Influence In
Factors (Max.) Balance
Inflation 4% (about � of total)
Quality of Service 1%
Growth 1%
Need to attract capital 1.5%
3
n:11 D R. A ___ _' ___ .Ir
' "• `1. .. .�-. ... /I.I I— +.� / 1J.11 A„Id I.C:J, Illl .
3
Method Four places even more stress on all factors (except
growth) in determining the rate base and the balance to be used,
The reason is that a regulatory authority should be permitted to
allow a maximum balance in times of extreme inflation (or deflation)
and a great need to attract capital. This should be true even
though the other two factors (quality of service and growth) are
neutral. In this manner, a public utility could be afforded some
protection from possible bankruptcy during periods of sustained
deflation or when excess capital was needed. It would seem that if
current cost new ever becomes much less than original cost and if
Section 40, PURA, does limit the rate base to adjusted value of
capital, maximum balance (75 %) to original cost might be justified
by the regulating body even if the other three factors were neutral.
In my opinion, by using the rationale above, a reasonable
influence might be similar to the following:
Influence In
Factors (Max.) Balance
Inflation 7.5%
Quality of Service 5.0%
Growth 1.0%
Need to attract capital 7.5%
In Method Four, if all four factors were applied as an adjustment
to your starting balance (67.5 %); if all four factors were found to
be the maximum in each case; if all of the adjustments were either
negative or positive, a recommended balance could result in a
minimum of 46.5$ and a maximum of 88.5% to original cost.
4
W R M M & A I
t c orries ssoclates, nc.
If such case should occur, the balance to original cost should
be limited to no less than 60° or more trian 75% irregardless of the
method selected or the number of percentage points accumulated in
the adjustments. This method (or any method) is simply a type of
grading system.
It is much like grading systems used in colleges. If the
professors give an "A" for 92`is (and above), one student makes 92%
and another makes a higher grade, both would receive the same grade
on their report cards. The fact that one exceeded the requirements
for an "A" does not make the grading system faulty. An "A" is
simply the maximum grade to be given. The same is true of the
reasonable balance, the extreme limit of the balance is the maximum
"grade" permitted.
2. Influence of Inflation
One must first determine whether to subtract or add to the
starting balance for the influence of inflation.
The answer depends upon the reason for the discretionary part
of the balance. Is this part of the balance to level out inflation/
deflation extremes or is it for some other purpose?
In my opinion, the adjusted value rate base should increase as
inflation increases- the principal question is, should the discretionary
part of the reasonable balance be used to increase or decrease the
rate of increase? Some have used inflation rates as the variable
in determining the reasonable balance. PURA (1975) says consider
"inflation" not "rate of inflation ". There is a difference. Rate
of inflation is the velocity of change. Inflation is that change.
5
R:11 A R, A
Inflation is that amount when added to the original cost gives
current cost. Inflation in the context of rate base determination
should be the accumulated total of all inflation since the property
was constructed. Inflation is not a rate of change but the change
itself.
Basically, there are two theories advocated on how inflation
should affect the final balance. One holds that as inflation
increases, the reasonable balance should increase to give more
weight to the current cost new component. The second theory contends
the opposite should be true.
The rationale often advanced for the first theory is that the
more the inflation, the more the adjusted value rate base should
be. This criterion, though, is generally met irregardless of the
balance selected.
Look at Illustration 1(A) on the following page. You will note
when using any balance between 60 -40 and 75 -25, as inflation increases -
adjusted value increases. If current cost new studies reflect 75%
inflation, the adjusted value becomes 118.75 %, 124.38 %, and 130% of
original cost depreciated for balance of 75 -25, 67.5 -32.5, and 60-
40 respectively.
The second theory is based on the rationale that the discretionary
part of the reasonable balance (15% range) should be used to level
out the extremes of the economic cycles.
It appears that the second theory is the correct concept for
these reasons: (1) By requiring any balance between original
cost and current cost in determining an adjusted value rate base,
11
Bill R. McMorries & Associates, Inc.
► ra
I(A) 1/2 CYCLE
*,0/
00 ff mop . ONO
cost
I
Q it
� lea
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O �
Q
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23% 30%
INF'L A rION
t IA 1/8 CYCLE
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71 1
ILLUSrRArION ONE
A C Ca n i u alt: Extremo:
/ •
/
' •�
/.
I
W
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J
1
W
t
y
J
O
Q
0
DECREASING O,C, BALANCE AS
I NFL A T ION INCREASES
ILLUSTRATION TWO
lfA) //l CYCLE
3 (el PULL CYCL E
W
J
A dldofod Volvo
O
A���dlad
Votes
orglaol Coat
original Colt
J
O
Q DEPLAr /0N IINFLArigm
INCREASING O.0 BALANCE AS
INFLA TION INCREASES
ILLU.STRAr/ON THREE 7
Bill R. McMorries and Associates, Inc.
L • vole Exlro/no♦
4Q *01 *•
A.Y
t (a) PULL cYCL e
the Legislature has mandated that the extremes of economic cycles
(inflation /deflation) be flattened. Look at Illustration 1(B) on
the preceding page. Any balance provides leveling out the extremes
of economic cycles. The purpose of the Legislature to flatten the
extremes of economic cycles seems obvious. (2) The Legislature,
in determining greater balance to original .:ost, has mandated that
the extremes of economic cycles not only be flattened but greatly
flattened. They gave more weight (not less) to original cost
during a time when inflation was the greatest. This law was passed
in June, 1975 after the economy had suffered the greatest rate and
the greatest amount of inflation in many years. Inflation is the
first subject mentioned in the new law to be considered in determining
this balance. (3) The Supreme Court of Texas (Alvin) also gives
the reason for a balance. On page 572, 289 South Western Reporter
2d Series, it stated:
if . . . to even out the curve and flatten the extremes
of economic cycles."
(4) The discretionary part of the balance (between b0% and 75 %)
should be used to achieve the same purpose as the mandatory part of
the balance, i.e., to even out the extremes of economic cycles.
It is not logical to use one theory to rough -tune the regulatory
process by requiring a 60% to 75% balance to original cost by law
and then use a completely opposite theory to fine -tune the adjustment
between the mandatory numbers.
Look at Illustrations 2(A) and 2(B). These show the effect of
decreasing the - original cost component in the reasonable balance as
inflation increases. It starts with a 75 -25 balance with no inflation
8
= R M M & A I
t c Of CS ssoctates, nc.
and ends with a 60 -40 balance with high inflation. This method
magnifies and does not smooth out the curve of economic change.
Now look at Illustrations 3(A) and 3(B). These illustrations
increase the original cost component as inflation increases and
ends with 75 -25 balance with high inflation. This method levels
the extremes and evens the curve of economic change. (5) Look how
inflation has paralleled the increase in the balance factor applied
to original cost in determining rate base values in Texas. (See
MCM Exhibit 4, page 1) Prior to the Alvin case in 1956, companies
were generally using no balance to original cost. Alvin dictated
that a "reasonable balance" must be used and in that case used 50%
balance to original cost= the Railroad Commission consistently used
50% balance from 1956 to 1970.
In 1970 the Texas Railroad Commission (Docket 428) began using
60% weighting to original cost depreciated and they have used the
balance to the present time. Accumulated inflation is even greater
now than it was when the shift was made in 1970. In 1975 the new
PURA stipulated that this balance should now be between 60% and 75%
to original cost.
If the purpose is to flatten the extremes of the economic
cycles, the higher the inflation the more dampening or flattening
is required. As inflation increases, a corresponding increase in
the percent of balance should be assigned the original cost component.
In my research on inflation, it appeared that the normal inflation
(over a 30 -year period) that should have impacted the current cost
9
M11 R M M &
c orrtes Associates, Inc.
(after considering retirement of plant and growth) should be about
25 %, therefore, 25% was used as this norm.
In the study mentioned previously, after taking into account
normal retirement of plant and growth, I determined that 75% would
represent the typical maximum inflation that could be expected over
a 30 -year period. Since 1912 the greatest inflation has been in
the last 30 years. I have assigned 75% as the expected normal
maximum inflation and assigned the maximum inflation influence
factor for cases that exceed this normalcy.
3. Quality of Service
A company should be encouraged to provide proper service.
Quality should be considered in determining the final balance to be
utilized. The balance used should be based on the utility's experience
level of service quality.
4. Growth and the Need to Attract Capital
Growth of the company can be measured in various ways. One is
the increase in number of customers. The expected growth can
require above normal capital requirements and should be considered
in determining the final reasonable balance recommended in any
case.
10
n:11 U Rr
�•.• ... ...•.a..vaa aa.a w a auuw�a�a.o� aa.�..
• a W- 021, J
_`Jommorrow ".
209 N. New Hope Road, P. O. Box 268 • Kennedale, Texas 76060 • (817) 478 -5418
June 19, 1991
To: Gene Blessing
Kennedale News
From: Linda Jones
City Secretary
Please publish once in the newspaper for the week of
June 24, 1991. Thank you
CITY OF KENNEDALE
ORDINANCE NO. 3
AN ORDINANCE FIXING AND DETERMINING THE GENERAL SERVICE RATE
TO BE CHARGED FOR SALES OF NATURAL GAS TO RESIDENTIAL AND
COMMERCIAL CONSUMERS IN THE CITY OF KENNEDALE, TARRANT COUNTY
TEXAS; PROVIDNG FOR THE MANNER IN WHICH SUCH RATE MAY BE CHANGED,
ADJUSTED, AND AMENDED; APPROVING THE ELIMINATION OF THE COMMERCIAL
CONTRACT PUBLIC SCHOOL RATE PROVIDING FOR THE RECOVERY OF ANY
CURRENT OR UNRECOVERED PRIOR RATE CASE EXPENSE, PROVIDING FOR
A SCHEDULE OF SERVICE CHARGES, AND PROVIDNG FOR A MAIN LINE
EXTENSION RATE.
EFFECTIVE DATE: On and after July 1, 1991
Passed and approved in open session by the City Council of the
City of Kennedale on the 13th day of June 1991.
LONE STAR CAS COMPANY
KENNEDALE, TEXAS
COMPARISON OF RATE INFORMATION
TEST YEAR ENDED 6 -30 -90
Line
No.
1 Revenue Increase (Decrease)
2 Residential
3 Commercial
4 Subtotal
5 Service Charges
6 Total Revenue Increase
7 % Revenue Increase
Lone Star
Proposed
$14,899
4,086
$18,985
I G -1
1,17
$20,162
5.98%
McMorries
Proposed
$5,419
4,692 ,fi
$10,111
1,177 �l
$11,288
3.34%
8 Rate Information
9 Residential:
10 Customer Charge
11 All Consumption
12 Off -Peak Sales Discount
13 Commercial:
14 Customer Charge
15 First 20 MCF
16 Next 30 MCF
17 Over 50 MCF
1)
$8.0000
$5.3020 Per MCF
$0.2500
$14.0000
$5.3112 Per MCF
$5.0112 Per MCF
$4.8612 Per MCF
18 City Gate Rate
19 Volume Factor
20 Tax Factor
$4.0200 Per MCF
1.0312
1.06226
1) An off -peak sales discount of $ .25 per MCF will apply to
residential customer's volume purchased in excess of 8 MCF
for each of the billing months May through October.
$7.0000
$5.2020 Per MCF
$0.2500
$12.0000
$5.4478 Per MCF
$5.1478 Per MCF
$4.9978 Per MCF
$4.0200 Per MCF
1.0312
1.06226
Cit y o Fort Worth,. _ Texas.
, .T,,,N,,U,L,, WMa ({ Jf oY an C ®unt LL/W `L/bmmunication ' p.
DATE REFERENCE SUBJECT: LONE STAR GAS COMPANY REQUEST PAGE'
NUMBER FOR INCREASE IN LOCAL RATES 3
5 -21 -91 G -9158 I lof
RECOMMENDATION
It is recommended that:
1. An ordinance (Attachment A) be adopted by the City Council establishing
new residential and commercial gas rates to be charged by Lone Star Gas
Company, within the City of Fort Worth, as recommended in the McMorries.
and Associates Report; and
2. Lone Star Gas Company be invoiced to reimburse the City of Fort Worth for
the funds expended to engage the consultant, in an amount not to exceed
$26,000.
BACKGROUND AND RATE HISTORY
The present gas rates in effect in Fort Worth were approved by City Council
in M &C G -6439 and established by Ordinance No. 9491, adopted September 24
1985. These rates replaced old rates established November 23, 1982 (Ordinance.
No. 8690) . - - --
On February 6, 1991, the Lone Star Gas Company filed a request for authority,
to increase its residential and commercial rates in Fort Worth and the 18
other cities comprising its Fort Worth Distribution System. The requested
rates are designed to produce additional revenues of $3.716 million on Lone,
Star's Fort Worth Distribution System. That portion of the requested increase
attributable to customers in the City of Fort Worth would be $2,610,154.
On March 5, 1991, the City Council approved M &C G -9065, which authorized the
engagement of a. consultant, McMorries and Associates of Amarillo, Texas, to
evaluate the propriety and justification for the rate request. This firm has
been the City's consultant in previous rate cases. In addition, the Council.
approved Ordinance No. 10801, which suspended the implementation of the new
rate until June 12, 1991, pursuant to,Article 1446e, V.A.T.S., the Gas Utility
Regulatory Act (GURA).
The consultant now has completed his study and report (Attachment B). The
consultant recommends that $1.674 million additional revenue will be required
system -wide, which is 45 percent of the Company's requested increase of $3.716
million. The amount attributable to customers in the City of Fort Worth would
be $1,176,834. The comparison between the Company's and consultant McMorries'
findings is summarized as follows:
Company
Consultant
IN THOUSAND
1.
Operating Revenues at Present Rates, Adjusted
$90,691
$90,945
2.
Proposed Additional Revenues
3,716
1,679
3.
Total Operating Revenues (1 +2)
94,407
92,619
4.
Less (adjusted) Operating Expenses
86,889
86,063
5.
Less Federal Income Tax
1,823
1,510
3
$6.00
$6.00
$8.00
$7.00
DATE
REFERENCE
NUMBER
SUBJECTLONE STAR GAS COMPANY
REQUEST
FOR
PAGE
5 -21 -91
G -9158.
INCREASE IN LOCAL RATES
-
5.3020
2 ' 3
of
Net
perating Income
3 -4 -5
5,695
5.0520
7. Rate Base (Adjusted Value of Property)
82,123
73,422
8. Rate of Return (Line
6/7)
6.93%
6.87%
The consultant's recommended rates differ from Lone Star Gas Company's
proposed rates in the monthly "customer charge" and the per unit-charge.-- The
following table shows the current, proposed and recommended rates.
RESIDENTIAL Present Company Proposed Consultant
Summer Winter
Customer Charge
$6.00
$6.00
$8.00
$7.00
All Mcf
4.9346
5.2846
-
-
Peak Period
-
-
5.3020
5.2020
Off Peak
-
-
5.0520
4.9520
COMMERCIAL
Customer Charge
$9.00
$9.00
$14.00
$12.00
All Mcf
4.9346
5.2846
-
-
First 20 Mcf
-
-
5.3112 -•
5.4478
Next 30 Mcf
-
-
5.0112
5.1478
Over 50 Mcf
-
-
4.8612
4.9978
A bill comparison using current, proposed and recommended residential and
commercial rates is attached (Attachment C).
There are three important changes proposed in this rate application that
should be noted. The first change is the elimination of the present
summer /winter rate differential. Lone Star Gas is proposing a three step
declining block rate for commercial customers, designed to recover the cost
of serving this customer class and to encourage business growth. For
residential customers the Company proposes an off -peak discount for amounts
used in excess of 8 Mcf during the billing months of May through October. The
second change is the elimination of the public school rate offered under
contract. As these contracts expire, the school districts will become
commercial customers and be billed under the same uninterruptable commercial
rate approved by the City of Fort Worth. The third change is a weather
normalization adjustment, which would automatically adjust rates for winter
weather which is abnormally cold or warm.
Lone Star Gas Company also has requested increases in certain miscellaneous
charges as shown below:
g
DATE REFERENCE sueJECT -ONE STAR GAS COMPANY REQUEST FOR PACE`
NUMBER 5 -21 -91 G -9158 INCREASE IN LOCAL RATES 3 0> 3
From To
Reconnect Charge
8 a.m. to 5 p.m. Monday through Friday $20.00 $25.00
Nights, Weekends and Holidays $30.00 $40.00
Collection Charge (per trip) $ 5.00 $ 7.00
The consultant concurs that these increases are fair and reasonable.
WA:b
12GASRAT
APPROVED BY
CITY COUNCIL
E
MAY 2; 1991
u�
City Secretary of the
City Of For Worth, Texa,
SUBMITTED. FOR THE
CITY MANAGER'S
Mike Groomer
6140
DISPOSITION BY COUNCIL:
PROCESSED BY
OFFICE BY:
❑ APPROVED
ORIGINATING
Wade Adkins
7623
❑ OTHER (DESCRIBE)
DEPARTMENT HEAD:
TY SECRETARY
FOR ADDITIONAL INFORMATION
Wade Adkins
7623
p
Adop}e {� f)rdi+�nc 'Nh
--
CONTACT:
DATE
:
AFFIDAVIT OF PUBLICATION
STATE OF TEXAS:
COUNTY OF TARRANT:
B & B Publishing, Inc.
833 East Enon
P.O. Box 40230
Everman, TX 76140 -0230
Phone (817) 478 -4661
Publishers Of:
EVERMAN TIMES
KENNEDALE NEWS
FOREST HILL NEWS
SOUTH COUNTY NEws
CITY OF KENNEDALE
BEFORE ME, the undersigned authority, on this day personally appeared VICKY COOPER
who having been duly sworn, says upon her oath:
That she is the Circulation Manager of the KENNEDALE NEWS
which is a weekly newspaper published in Tarrant County, Texas with a general
circulation in the city of KENNEDALE
and that a copy of ORDINANCE # 3 1
which is attached to this affidavit, was published in said newspaper on the
following date(s): to wit June 27th, 1991
EXECUTED THIS 9TH DAY OF SEPTEMBER, 1991
Vlcky,,Coop
SUBSCRIBED AND SWORN TO BEFORE ME THIS, THE 9TH DAY OF SEPTEMBER 1991
v / 1
NOTARY PUBLIC
TEXAS
------
"E ON: EXCELLENT INCOME
home assembly work, Info.
-646-1700. Dept. P2109. 7-9
- --------------------------
UAL JOBS: $11.41 to $14.90
.For exam and application
f o r m a t i o n call
19-769-6649, ext. TX. 238
8-12
-----------------------------
"ITARY PERSONNEL for
rement residence- 1 cook, 2
acing room and kitchen
sndents. Exp, preferred, apply
Person between gam & llpm.
2pm to 4prn M-F at Huguley
Ice 300 Huguley Blvd.,
fl,son, Tx 76028. 568-1000
-----------------------------
Texas
it's Like AWhole 0hr C004,
RR Free Quotes by Phone
Enon, Everman, 11
Fireworks injure 10,000 annually
� r � � t
Never allow fireworks to be used
without adult supervision.
?, NO. 427 -- Never use fireworks in prohibited
mi NOW-
W��*
(e Cit C of the City of Ever-
1991.
areas.
-- Always place firecrackers on the
ground before lighting theta.
Never throw fizecratIer.
Riday,
#9 The Forest HUI News along with liras for Uewsisl ju Ju
— thp nther R&B Publishim newsoa.- 5 pxn &adfine June 28 for advei